SINGAPORE (Dec 17): RHB Group Research is raising its target price for Centurion Corporation by 9.3% to 47 cents, on the back of higher forecasts following the dormitory operator’s £15.1 million ($27.0 million) proposed acquisition of Archer House in Nottingham, UK.
Centurion’s second acquisition in Nottingham, Archer House will bring the group’s UK portfolio to a total of over 2,850 beds across 11 purpose-built student accommodation (PBSA) assets in five cities.
It is also expected to increase Centurion’s total student and workers accommodation portfolio to 33 assets globally, bringing the total number of beds under management to more than 65,000.
See: Centurion Corp to acquire student accommodation asset in Nottingham for $27 mil
The way analyst Jarick Seet sees it, the proposed acquisition is right on target and could see a lift in earnings for Centurion.
The analyst is raising his forecasts for FY2020 to FY2022 by 2-5% with the inclusion of the 177-bed Archer House student accommodation.
“We think that the acquisition is fair,” Seet says in a Dec 17 report, as he keeps his “neutral” recommendation on Centurion.
“We like Centurion as a defensive play, while its recurring income provides a buffer from any earnings downside. We also think that this counter is reasonably priced, in view of the size of its accommodation assets portfolio,” he adds.
Following the proposed acquisition of Archer House, Seet believes Centurion could shoot for more potential acquisitions.
“We think that the group is likely to add more beds to its current portfolio next year to meet its steady demand,” he says. “However, it could be interesting to see Centurion venturing into other specialised accommodation types as well.”
However, Seet warns that Centurion could see higher debt ahead. He notes that the group has total borrowings of $714.9 million as at end-September, compared to $53 million in cash.
“With the proposed acquisition [of Archer House] to be funded by a combination of borrowings and cash, both borrowings and financing cost are set to increase,” Seet says.
As at 12.30pm on Tuesday, shares in Centurion Corporation are trading half a cent higher, or up 1.2%, at 44 cents.
Accordig to RHB valuations, this implies an estimated recurring price-to-earnings (P/E) ratio of 10.9 times and a dividend yield of 4.5% for FY2019F.
