Hammerson, like many shopping centre owners, is in a bit of a sweet spot. The improving economy has fed through into more activity at the tills, which in turn gives retailers the confidence to lease more space. Meanwhile, the rock-bottom level of market interest rates is enabling the company to lock into fabulously cheap credit. Hammerson borrowed for eight years the other day at a coupon of only 2 per cent.
Hammerson, which runs shopper magnets like the Bullring in Birmingham and Brent Cross in London, reported strong leasing momentum in the year to December, signing up new tenants paying an additional £29.5 million of annual rent. That compares to an increase of £23.9 million in the prior year.
Perkier spirits among shopkeepers are pushing up valuations: the estimated rental value of the entire UK portfolio grew by 2.6 per cent, the first improvement since 2008. It’s a watershed moment, according to David Atkins, the chief executive , who sees no reason why the climate in retail property cannot continue to improve for the next three to four years.
Unlike its Footsie rivals British Land and Land Securities, with their big office block holdings, Hammerson is a pure retail property play. That has hurt it in the past, but in recent months it seems to have improved its relative attractions as consumers start to feel wealthier and more confident.
It has two other distinguishing features — large exposure to outlet centres and to France. The outlet centre business is booming, with tenants posting sales growth of 10 per cent a year. Luxury goods retailers are flocking to offload embarrassing amounts of unsold stock they don’t want cluttering up their prime sites.
France is a less happy story, but even here Hammerson has a better tale to tell. It was early to see the potential of Marseilles and appears to be harvesting the fruits of that punt, booking a £107 million profit on a £400 million investment.
Much of the good news is already in the price. The shares, down 6p yesterday at 685p, trade at a 7 per cent premium to net assets. That compares with a discount of as much as 30 per cent during the depths of the last commercial property downturn. In better times, premiums can go to 20 per cent or more.
NAV/share 638p
Yield 3%
97.5% Proportion of shop sites occupied
My Advice Buy
Why Sweet-spot conditions in retailing and the debt markets have longer to run, while its expertise in outlet centres is icing on the cake
Fidessa Group
Fewer than 1 per cent of customers of Fidessa go elsewhere each year. The company that supplies software to investment banks and institutional investors around the world has incredibly sticky clients. That’s partly because it takes two years to switch software platform providers and requires disruptive staff retraining. Add in the ever-growing complexity of compliance and banks would rather stick with what they know.
Even so, Fidessa struggled to grow revenues from an industry still consolidating, trimming costs and in some areas retreating in the aftermath of the crisis. Adverse currency movements added to the pressure, leaving sales down 1 per cent and adjusted pre-tax profits 5 per cent lower at £39.8 million.
Fidessa said that the sales outlook was improving, though, and lifted the annual dividend 3 per cent to 38.1p. There was another 45p special dividend. These have been paid for the past five years as the cash piles in, but Fidessa terms them special so that it can easily cut them if a suitable acquisition comes along.
They add up to a 3.5 per cent yield, but Fidessa’s loyal customer base — and the high barriers to entry in this complex and highly regulated field — place the shares on sky-high rating of 31 times historic profits.
Revenue £275m
Yield 3.5%
My Advice Hold
Why Great company but shares are very dear
DX (Group)
It has been a two-stage journey for investors persuaded to buy into the DX (Group) flotation last February. Shares in the parcels delivery company surged from the 100p placing price to as high as 145p in May before a long retreat to settle yesterday at 94¾p. The company has been plagued by the malaise hitting the logistics sector, which reached its low point with the failure of City Link on Christmas Eve.
The sector is engaged in a destabilising price war, which not even the growth in internet shopping volumes seems able to disperse. Amazon’s decision to launch its own delivery service hasn’t helped. DX reported a 5.6 per cent decline in sales for the six months to December, with adjusted pre-tax profits dipping lower, too, from £10.9 million to £10.7 million.
The company has picked some useful bits and pieces from the corpse of City Link, including equipment and intellectual property, but the demise of a significant competitor has not produced a sales or pricing bounce for the survivors. Some rivals “continue to offer unsustainably low prices”, DX says disapprovingly.
Still, there was no doubt about the interim dividend, which came in at 2p as expected and was comfortably covered more than one and a half times. DX, in an elliptical way, confirmed it still expected to pay a 4p final dividend, subject to trading, although Petar Cvetkovic, the chief executive, was cagey yesterday about committing to it. That 6 per cent yield underpins the share price. Any serious doubts about it and the shares would be clobbered.
Revenue £147m
Free cash £4.7m
My Advice Avoid
Why Price wars can go on longer than logic suggests
And finally ...
The company that pays volunteers £3,000 to be infected with flu for a fortnight has got a touch of the sniffles. Retroscreen Virology, which tests treatments on healthy volunteers for big pharma companies, said that the ebola outbreak was persuading clients to divert their attention away from its core areas of flu and cold treatments. It warned of lower demand for its clinical trials. The shares dived 9 per cent to 248p — below the 260p level at which it raised £33.6 million last year.
