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Short of the Week: Hammerson and the struggling retail sector


Hammerson, the UK shopping centre owner, is still looking in a very weak position despite a £550m rights issue.

The Hammerson share price briefly rallied following the big COVID impact dip in March. The stock actually hit a recent low in May, as the property firm was further sold off by investors post-pandemic shock.

Hammerson shares then staged a little bit of a rally, but have sunk again as investors have worried over whether it would breach covenants.

We saw a recent peak at GBX 137 on 3 June but it has been downhill ever since. A decent short trend has since emerged as investors have continued to dump stock and the shopping centre segment in the UK has begun to look like a place to avoid.

Measures to reduce net debt

It should be noted that broker Liberum recently shifted Hammerson from a sell to a hold, largely on the basis of the recent rights issue being fully underwritten. Liberum has set a 50p target price on the stock, up from 30.

Hammerson’s rights issue saw shares priced at a 95% discount as the company sought to reduce its net debt and bring down its ratio of debt to loans. It has also revealed a net loss of £1.1bn for the first half of the year. The rights issue was accepted by Hammerson’s two biggest shareholders, APG and Lighthouse.

Hammerson has also said that it is selling its stake in a European joint venture, Via Outlets, which has been valued at £274m.

Hammerson’s exposure to retail shopping

What we have here is a company with massive exposure to retail shopping, especially via two of the largest shopping centres in the UK. While shops have reopened, and consumers are straying back into shopping centres, there are also two other key considerations as far as Hammerson is concerned.

Firstly, the second wave of the coronavirus could be a reality more quickly than many investors imagine. Colder weather will mean Brits will spend more time in-doors, where the virus is x19 more infectious. Indoor shopping centres will be very high on the government’s list when it comes to initiating future lockdowns.

Secondly, many of Hammerson’s clients are retail firms who are very much in consolidation mode, closing outlets and reducing their presence to only the most profitable stores. As for restaurants, this sector is in a highly parlous state and we don’t see food outlets improving their position much in the UK ahead of the mass deployment of a vaccine. Most UK restaurant groups are on virtual life support and won’t be able to tolerate anything other than substantial – and we mean substantial – rent reductions.

Hammerson’s new approach

Hammerson CEO David Atkins has said the company is going to adopt a new approach to leasing property, including more flexible leases, re-based rents at more affordable levels and using indexation to replace the old rent review system. He has admitted that “the UK’s historic leasing model has served its time.”

Hammerson anticipates that it will be inking these new leases later this year. But right now the stock looks like the poster child for the woes of the struggling high street retail sector. Even with a new approach to leases, we cannot expect much in the way of growth and profits from Hammerson within a six month time frame.

This is not a good time to be exposed to large shopping centres.

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This article does not constitute investment advice. Do your own research or consult a professional advisor.

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