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Your thoughts on 2 related stocks

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Your thoughts on 2 related stocks

Hi Esteemed Team, What are your thoughts on CWL & SGP ? CWL has been steadily dropping and SGP may be fully priced. Do you see any growth possibilities in either company? Thanx, PC

Answer

Hi Paul,

We assume you meant Charter Hall Long REIT (CLW), not CWL which was delisted a while ago.

We believe both SGP and CLW will be driven be interest rate perceptions over the coming months, with CLW more heavily influenced by the direction of longer dated bonds given their long term profile of lease expiry i.e. they have their earnings locked in for a longer time period so interest rates are more influential for them. Think about it on the spectrum of equity on one side and fixed rate bonds on the other. While bond yields influence equities, they impact fixed rate bonds more. Stockland is more equity like while CLW is more bond like, but both are impacted.

The view that rates will be higher for longer has weighed on the real estate sector generally in recent weeks and especially since Trumps victory.

  • At this stage we believe CLW will struggle ~$4 but investors remember its paying a yield of ~6.65% via quarterly instalments.
  • Conversely SGP looks capable of  retesting/breaking $5.50 although we note it reports in mid-December.
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Stockland (SGP)
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