Falling property prices and high inflation hitting our pockets… maybe it’s not the best time to invest in shopping centres and retail? That could be why the Hammerson (LSE: HMSO) share price has crashed.
With the shares down in penny stock territory, commercial property giant Hammerson has lost 90% of its value in the past five years.
Real estate pain
Hammerson invests in office property and has a substantial retail real estate portfolio. And even before inflation started soaring, it was hit by the pandemic lockdown.
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Earlier in 2023, analysts just couldn’t downgrade their full-year expectations quick enough.
We’ve seen a combination of just about all the things that could go wrong for a commercial real estate firm that’s focused mainly on retail. The pessimism could hardly be worse.
So it’ll be time to buy, then?
The contrarian
Legendary investor Sir John Templeton might have thought so…
When people are desperately trying to sell, I buy. When people are desperately trying to buy, I sell. It has worked out very well over the years
As it happens, some analysts are starting to agree. Barclays is one of the latest to start to lift its price target. At 30p though, it’s not massively above the 24p price, as I write. Still, it’s a start.
Forecasts see Hammerson posting a decent pre-tax profit in 2024. And they see cash flow rising strongly as early as this year. Oh, and lettings in June are on the up.
The City even seems to think we could be on for a return of the Hammerson dividend, with yields in excess of 5%. But what does the company say?
FY turnaround
At FY time, the board told us it has “focused on what we can control – sharper operations growing like-for-like gross rental income and reducing the cost base – delivering a significant increase in adjusted earnings“.
Adjusted earnings gained 60%, although we saw a statutory loss. Adminstration costs fell 17%, and should drop further this year and next.
With a stock like this, it’s got to be mostly about the balance sheet. And that looks to be where the main risk is, with property values downgraded by the end of 2022.
We’re looking at net debt of £1.7bn, down 4%, but still not great. Although Hammerson reported liquidity of £1bn, which seems fine.
Long-term buy?
Further real estate weakness could hit the balance sheet in 2023, and that in turn could send the share price down again. And with inflation refusing to budge and base rates up at 5%, I really could see more gloom before any sustained share price recovery.
But if Hammerson can get through the next 12 months looking good, I think it could turn out to be a good long-term buy now.
So should we follow the bears and let the risks keep us away? Or is this a time for contrarian investors to go against the crowds and buy Hammerson shares?
I’ll leave it with another quote from Sir John…
I can complain because rosebushes have thorns or rejoice because thornbushes have roses.
