Why this unloved ASX 200 share could turn $5,000 into at least $10,000

This stock looks like a compelling opportunity to me.

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I like identifying undervalued S&P/ASX 200 Index (ASX: XJO) shares for the potential profit they may generate in the coming years. With that in mind, let's ask: Is the real estate fund manager Centuria Capital Group (ASX: CNI) an opportunity to double your money?

The ASX financial services company offers a range of investments including listed and unlisted real estate funds as well as tax-effective investment bonds.

As we can see on the chart below, the Centuria share price has fallen by more than 50% since September 2021.

Created with Highcharts 11.4.3Centuria Capital Group PriceZoom1M3M6MYTD1Y5Y10YALL1 Sep 20213 Sep 2024Zoom ▾Jan '22Jul '22Jan '23Jul '23Jan '24Jul '24202220222023202320242024www.fool.com.au

Just because a share price has fallen doesn't mean it's going to get back to that level any time soon. However, this much lower valuation may be a good time to invest and help turn $5,000 into $10,000. I can see three compelling factors.

Distributions

Centuria expects to pay sizeable distributions in FY25, and this can continue into future years, in my view.

The company gave some guidance for FY25 in its FY24 result, expecting to pay an annual distribution per unit of 10.4 cents. That translates into a distribution yield of 6%, which can help deliver a sizeable return for investors.

Each year that an investor holds this ASX 200 share in their portfolio, the passive income generated can help on the journey towards doubling their money.

Data centres

Centuria recently acquired a 50% stake in new-generation data server provider Reset Data, which uses liquid immersion cooling technology to create edge data centres. They reportedly have compelling fundamentals compared to traditional air-cooled data centres.

ResetData can use underutilised real estate (office) space, which both unlocks rental earnings and increases the value of the (office) building.

An increase in the value of Centuria-managed buildings can lead to an important rise in Centuria's funds under management (FUM) and funds management fees/profits, because the buildings are worth more. This, in turn, helps improve the value of the ASX 200 share's holding of Centuria Office REIT (ASX: COF), in which it owns a sizeable stake.

The overall effect of this data centre strategy could increase the underlying value of Centuria shares by at least 10%, in my opinion.

Interest rate cuts

It appears that interest rate cuts are getting closer in Australia, even if we have to wait until 2025 to see them.

The eventual drop in interest rates could help Centuria shares climb significantly, and I expect the majority of the potential shareholder return to come from this.

Lower rates could mean investors are willing to pay for a higher price/earnings (P/E) ratio for the business. This could increase the underlying value of commercial real estate, helping boost Centuria's FUM and operating profits. It could also potentially boost the value of its holdings in Centuria Office REIT and Centuria Industrial REIT (ASX: CIP).

Finally, lower rates could encourage households and institutions to take on more risk with their capital if money in the bank isn't earning as much. In other words, if rates are cut, net inflows could increase, which could send the ASX 200 share higher as well.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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