BUY, HOLD, SELL
European property development stocks are a bit of a mixed bag. Though many face uncertainty, some are making a better go of it than others …
HAMMERSON PLC Share price: R89.87 JSE code: HMN BUY HAMMERSON PLC IS MUCH
better positioned than many of its competitors to stave off Brexit uncertainty. The European shopping centre owner, which operates out of London, has spent recent months diversifying out of the UK to shield itself from the effects of the Brexit process and other risks in the UK, says the company’s CEO, David Atkins.
The group is benefiting in particular from its assets in Ireland and outlet centres in Spain. Recent figures from Ireland’s Central Statistics Office show that the country’s economy grew 7.2% last year, outperforming the rest of the EU. Spain regularly features among the countries most visited by tourists, and many smaller shopping centres positioned at the coast perform well as a result of the tourist trade.
Hammerson should maintain healthy dividend growth for a number of years.
The group is primed to succeed over the next year. It owns very attractive shopping centres, and it managed to stave off a takeover attempt by French multinational Klépierre. It has bought its assets well — something that should be reflected in its performance. Its outlet centres and Spanish centres are especially exciting.
All property funds in the UK will have some exposure to Brexit, but Hammerson may be best equipped to cope with it.
INTU PROPERTIES Share price: R29.24 JSE code: ITU HOLD INTU PROPERTIES MAY HAVE
underperformed for a few years, but it could impress in its 2019 financial year. The group, which owns some of the most popular UK shopping centres outside of London, has been held back by weak management. This is set to change when CEO David Fischel leaves at the end of 2018.
In its most recent financial results, Intu reported a £503m loss for the six months to June. This disappointed the market, and sent the group’s share price plunging 9.09% — its biggest fall since June 2016, post-Brexit vote.
Intu was hurt by retailers — its tenants — entering administration or closing stores. Its stock has been trading at a discount of about 50% to the book value of its assets.
Investec Asset Management portfolio manager Peter Clark says Intu’s management does not have the best track record in shareholder value creation, as is clear from the group’s long-term underperformance.
“There has been limited active management of the portfolio. These results finally represent a more realistic view of the asset values, which have been expected to be marked down for some time,” he says.
A number of levers could unlock value for Intu, given the large discount to NAV its shares are trading at — “a good challenge for a new management team”.
CAPITAL & COUNTIES Share price: R48.00 JSE code: CCO SELL CAPITAL & COUNTIES (CAPCO)
has struggled to perform consistently for a few years. The group includes two main businesses: the Covent Garden retail development, which is performing strongly in the centre of London; and Earl’s Court, an ambitious residential development.
Capco has been poorly rated by analysts because of delays at Earl’s Court, where it is developing 92,903m² in housing. Its Covent Garden development, on the other hand, continues to excel.
Capco’s board has decided to split the company into two separately listed entities. It is, however, unclear how long this process will take, and how it will unfold. The recommendation is thus to exit Capco now, and buy the company that owns Covent Garden after the split.
Nesi Chetty, head of property at MMI Investments, says about 80% of Capco’s exposure is to Covent Garden, but the group is often undervalued because investors attached so much risk to Earl’s Court.
Covent Garden — valued at more than £2.5bn — will be launched as an independent, central London retail-focused real estate investment trust led by Capco head Ian Hawksworth. It’s unlikely there are many who are better qualified to ensure strong returns from the development.