Centuria Capital Group (CNI) is a specialist investment manager with a 35-year track-record of delivering a range of products and services to investors, advisers and securityholders. It has $20.2b in assets under management, centred around property funds management and investment bonds. We initiated coverage on Centuria with a fair value estimate of $1.75 per security.
We assume funds under management will stagnate for three years, with new funds and inflows offset by redemptions from mature funds and declining commercial property prices. We assume long-term returns on invested capital in line with an estimated weighted average cost of capital of 8.5%. Management fees contribute half of group operating earnings, and co-investments in its funds are about a third – both reliable income streams due to redemption limitations in the funds, and leases securing the rental income derived from co-investments. Nevertheless, we assume Centuria’s operating earnings and distributions per security fall roughly 15% in FY24, compared with 2023, mainly due to lower performance fees and higher debt costs. Offices are about one-third of the fund manager’s property portfolio, and that portion also faces rental headwinds. FUM growth should drive low- to mid-single-digit revenue growth over the next decade, though it’s likely to be uneven year to year due to volatile performance fees and development profits. A key attraction is that as scale increases, we assume operating margins improve to 50% over the next decade, up from about 40% currently.