Life goes on. That seems to be the message from Hammerson, one of our biggest investors in retail property. The company has done about 20 deals since the referendum vote, actually a bit higher than the average run rate. The deals have been done at above estimated rental value, much the same result as seen over the first six months of the year, when leasings came in at 6 per cent above ERV in the UK and 4 per cent in France.
NewRiver Retail reported something similiar a couple of weeks ago. The concern over the economic impact of Brexit is plainly not weighing heavily on those considering taking out retail space in the regional shopping centres that Hammerson specialises in, no matter what the effect on confidence is in the top-end London offices market.
As it happens, Peel Hunt took the opportunity yesterday to publish the bear case for the UK property market generally. The broker is looking for a 5 to 10 per cent fall in London property values and has its concerns over retail.
I, too, would not be investing too heavily in that top-end London market. Hammerson has several advantages, including the fact that 40 per cent of its assets are in the eurozone, mainly in France and Ireland. Over the past year it has structured a deal that has seen it take control of a prime Dublin shopping centre with no extra strain on its balance sheet.
Hammerson has £115 million of capital spending committed to schemes in Southampton and Leeds but the next three schemes to go ahead, including a joint venture with Westfield in Croydon, can be pulled if the trading environment deteriorates further. The loan to value ratio is running at 40 per cent, a bit high for the sector as a whole but not a concern.
The shares fell along with the rest of the sector but have since recovered, up 2½p at 548½p on the half-way figures. There is an argument that in a continuing low interest rate environment, property assets offering a decent yield will be more attractive. The shares sell at a 25 per cent discount to the latest published net asset value, while the dividend yield is 4.4 per cent. They are a good defensive play, but I would not be rushing to buy the sector.
MY ADVICE Avoid
WHY Hammerson is as well placed as any in the property sector given its retail bias but the shares have recovered and the sector looks vulnerable
William Hill
I once suggested the British gaming industry resembled a production of Arthur Schnitzler’s La Ronde, an endless permutation of couplings and mergers. Early last year William Hill made an approach for 888 but was rebuffed. Now 888, which is one of the biggest online players, has been forced to admit that it and Rank Group are hatching some ill-defined bid for William Hill.
It is hard to understand how this could make sense. William Hill, easily the biggest of the three, is focused on high street betting shops, while Rank is mainly known for casinos. There must be a suggestion that Rank and 888, both of whom have dominant shareholders speaking for a large chunk of their respective share registers, are trying to get in while William Hill is at a low ebb. The company is in a trough year, profit-wise, and has just lost its chief executive. The consolidation elsewhere in the sector, such as Ladbrokes’ looming merger with Gala Coral, is being driven by the need to cut costs because of tighter regulation, particularly of online betting and fixed odds terminals.
If Rank and 888 do make some sort of offer, those dominant shareholders will probably have to accept a degree of dilution, while the two will have to be much more explicit about any synergies available to make the deal work. William Hill shares, above 400p in March, added 15¼p to 328¾p. They therefore sell on almost 15 times earnings, which looks a bit rich. Unless you are confident a deal is on its way, best avoided, while those who bought at the bottom should take profits.
MY ADVICE Sell
WHY Thre is no certainty a deal will be reached
Aberdeen Asset Management
As I wrote here a fortnight ago in the context of Ashmore, the fund manager specialising in emerging market debt, such markets may be recovering but it is taking investors a long time to realise it. Aberdeen Asset Management has just reported its 13th consecutive quarter of net outflows of clients’ funds, and there is no reason that the tide should turn for the rest of the year.
It is tempting to think, therefore, that those clients are in danger of missing that recovery because of their excessive caution. The headline figure of assets under management at the end of June actually rose by £8.6 billion over the quarter but this was down to a £9 billion improvement in market performance and an £8.5 billion rise in those assets because of the increase in the value of the dollar against the pound. Net outflows still stood at £8.9 billion.
The shares, up 2p at 318p, have recovered since I tipped them before the referendum, which has cut the yield that had supported them in the downturn in emerging markets. This now stands at 6 per cent. There is better value elsewhere, even if I suspect that dividend is safe enough.
MY ADVICE Avoid
WHY Shares have recovered and dividend yield has fallen
And finally . . .
I like to keep tabs on Abcam, one of our more succesful biotech companies if not always that well understood. The company makes antibodies and other research tools for Big Pharma and its pre-close trading update for the year to the end of June has shown the fourth period in a row where growth has run at three to four times ahead of the market. Revenues for its core product, derived from rabbit antibodies, were up by 29 per cent, well ahead of earlier guidance, and China continues to be the biggest growth area.
Follow me on Twitter for updates @MartinWaller10
