The property fund manager reported last week with results that were ‘as expected’ in terms of financial metrics, which we covered here; however, the stock has pulled back sharply after the update. Why? It’s always easier to explain why something happened after the fact, hindsight trading at its best, something many of our competitors are very good at in their hypothetical portfolios!
CNI is a stock we’ve been bullish on for some time, but we’re down ~18% in the Income Portfolio (slightly up in the Emerging Companies Portfolio), and like all positions, we continue to question our thesis. On a PE of 12.4x for FY24 and a yield of 7% (part franked), it remains appealing, but not if the share price continues to slide. As we’ve written recently, the movement lower in bond yields in aggregate over the last 6 months has been a big beneficiary to the high operating leverage fund manager REITs, including CNI, so they enjoyed a run-up into their results, and while they were in line, the underlying trends still show some challenges. Raising new money is tough, capital inflows into their unlisted platform remained subdued at $300m for the half, which shows no real improvement on the run rates of FY23. Transaction volumes are subdued, and they still have a decent exposure towards the office, which remains on the nose.
Agriculture is a growth area for them, and they have a focus on owning high-quality agricultural real estate with solid tenants, an example being the 20-hectare glasshouse they own in Guyra NSW leased to Tomato Exchange, a subsidiary of ASX-listed Costa Group (CGC). Centuria is actually now the largest owner of glass houses in Australia, along with other protected cropping assets. One positive they did stress when we met them post results, was investor interest in agriculture remains strong, and we think they’ll continue to grow this area as a proportion of their business.
- Ultimately, nothing has changed in the past week or so for CNI, and we continue to believe that patience will, in time, be rewarded, and we’re happy to pick up a solid ~7% yield while we wait.
MM remains bullish and long CNI ~$1.50
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