Hyprop: Adopt­ing a con­trar­ian ap­proach

Finweek English Edition - - KILLER TRADE -

As a blue-chip prop­erty stock, Hyprop’s port­fo­lio is worth about R25bn − hold­ing prop­er­ties like the Rose­bank Mall, Hyde Park Shop­ping Cen­tre and Clear­wa­ter Mall in Jo­han­nes­burg. In 2014, it ac­quired Som­er­set Mall in Som­er­set West, and it has stakes in malls in Ghana and Zam­bia.

The com­pany has en­joyed sus­tain­able up­side over the past few years. Hyprop, the third-largest prop­erty counter, has re­ported good re­sults con­sis­tently – be­com­ing the favourite share for many prop­erty pun­ters. Also, re­gional malls have been out­per­form­ing other com­mer­cial prop­erty, even in down eco­nomic cy­cles.

En­ter­ing the mar­ket in other African coun­tries proved to be a lu­cra­tive in­vest­ment for Hyprop, mak­ing it the most liq­uid − if not the only − real es­tate in­vest­ment trust that pro­vides in­vestors with ex­po­sure to large ex­ist­ing malls in Sub-Sa­ha­ran Africa. Hyprop’s ini­tial plan was to in­crease its African al­lo­ca­tion from R750m to R3bn over the next five years from last year, a move that is al­ready pay­ing off well.

In a re­port t it led Africa’s Pulse, pub­lished last Oc­to­ber, the World Bank stated that “de­spite weaker-thanex­pected global growth and sta­ble or de­clin­ing com­mod­ity prices, African economies con­tinue to ex­pand at a mod­er­ately rapid pace, with re­gional GDP growth pro­jected to strengthen to 5.2% yearly in 2015/16 from 4.6% in 2014”.

It also ex­pects sig­nif icant public in­vest­ment in in­fra­struc­ture, in­creased agri­cul­tural pro­duc­tion and ex­pand­ing ser­vices in African re­tail, tele­coms, trans­porta­tion and fi­nance, to con­tinue to boost growth in the re­gion. This pre­dic­tion will bode well for Hyprop, which al­ready has a sub­stan­tial foot in the door.

Last year alone, Hyprop re­ceived div­i­dends of R4.8m and R30.3m from its in­vest­ments in At­ter­bury Africa and African Land, re­spec­tively. With the fu­ture look­ing bright for Hyprop, it ex­pects div­i­dend growth of be­tween 10% and 12% for the full year to June 2015. This def­i­nitely makes the share a buy and hold – for in­vestors to sim­ply en­joy dis­tri­bu­tions from some of the best shop­ping cen­tres in the coun­try, while par­tic­i­pat­ing in its suc­cess­ful in­ten­tion to con­quer the rest of Africa.

How­ever, if I was asked if this is the time to buy Hyprop, I would sug­gest not. Though many an­a­lysts re­gret­tably called it a sell last year, only to re­tract and cheer on the up­side, I be­lieve Hyprop has done its run, and is very ex­pen­sive at cur­rent prices. My usual re­sponse when the mass is op­ti­mistic, but the monthly chart is overex­tended, is to sell!

Although Hyprop has po­ten­tial to ex­tend its gains to around the 12 000c/share lev­els – it could pos­i­tively break­out of a sym­met­ri­cal tri­an­gle on the daily chart – I be­lieve this could be a rapid move that could lose steam and trig­ger a con­sol­i­da­tion. Hyprop is ex­tremely over­bought on the monthly chart, and has ex­tended the third and fi­nal phase of its pri­mary bull trend, which sim­ply spells cau­tion. Alarms bells should sound be­low 9 940c/share. Hyprop could retest pre­vi­ous sup­port lev­els – po­ten­tially to­wards the sec­ond sup­port trend­line – if that phase de­cides to give in.

Pos­si­ble sce­nario:

Hyprop will surge f ur­ther and the rel­a­tive strength in­dex (RSI) would re­main overex­tended. The steeper the trend be­comes, the greater the risk of a sharp and rapid re­ver­sal.

Al­ter­na­tive sce­nario:

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