Strategic Review of one FTSE Listed Financial Stock – Hammerson PLC (HMSO)

The United Kingdom and the European markets extended gains today (before the close on 2^nd June 2020). The major indices FTSE-100 index, CAC 40 index, DAX index gained 59.85 points, 108.42 points, and 447.99 points, respectively. Some of the major triggers were as below:

• The fresh government stimulus brought encouraging sentiments to lessen the depth of the recession as economic activities are gradually reviving.
• National insurance holidays as a part of stimulus package is also on table for discussion as Rishi Sunak (Britain’s Finance Minister) may consider the same. Stimulus announcement is scheduled for July 2020.
• The house prices in the UK fell the most since 2009 and posted a decline of 1.7 per cent in May from April.

Considering the current market conditions, we are going to discuss a Retail REITs Company- Hammerson PLC (LON:HMSO). On 2^nd June 2020, at the time of writing (before the market close, at 1.58 PM GMT+1), HMSO’s shares were trading at GBX 110.15, up by 33.55 per cent against the previous day closing price. Stock's 52 weeks High and Low are GBX 325.30/GBX 39.57. 52-week high price was registered at 24^th October 2019, and low price was observed on 14^th May 2020. The Company’s stock beta was 1.92, reflecting higher volatility as equated to the benchmark index. The outstanding market capitalization was around £624.55 million, with a dividend yield of 13.46 per cent.

In order to better understand the Company’s position, we will quickly go through the financial and operational position of the Company so that we can make some inferences regarding the plausible outlook scenario.

Business Overview: Hammerson PLC (LON:HMSO) – Sailing with a Robust Liquidity and Cash Preservatives Amid the COVID-19 Mayhem

Hammerson PLC is a Property Development and Investment Management Company. It operates, develops and manages retail destinations. HMSO’s portfolio also consists of shopping centres in the United Kingdom, France and Ireland. It also holds outlets across Europe and retail parks in the UK. The Company’s portfolio consists of 9 retail parks, 20 premium outlets, 4,700 tenants, 2.2 million square lettable area in 14 countries. The Company is a constituent of FTSE 250 and was admitted on the London Stock Exchange on 31^st May 1945. The Company birfucates its business by geographic locations it operates in, namely UK, Ireland and France. Further, the Group has interest in various sector in term of the property portfolio.

(Source: Presentation, Company Website)

Progress of Financial Key Performing Indicators

• Adjusted EPS growth decline by 2.6 pence, or 8.5 per cent, to 28 pence in the financial year 2019.
• During 2019, net debt was reduced to £2,843 million in the financial year 2019, reflecting a decrease of £563 million.
• The total property return produced -5.6 per cent in the financial year 2019, compared to 0.0 per cent total property return in the financial year 2018.
• Similarly, like-for-like net rental income decreased by 4.2 per cent in the financial year 2019.

Recent Major Regulatory Developments

• 27^th May 2020: The Company’s chief executive officer, David Atkins decided to step down from his position. He will continue to hold the position until spring 2021 while the Board is looking for his successor.
• 23^rd April 2020: The Company served notice to Orion that it will now terminate GBP 400 million retail park deal.

COVID-19 Update (as on 30^th March 2020)

The Group discussed the impact of COVID-19 disruption over the business and following were the highlights:

• During the period of unprecedented disruption, the Group is focused on protecting the long-term value of the Company while the priority is health and well-being of colleagues, partners and consumers.
• Across the UK retail portfolio, stores and properties have been shut since 24^th March 2020, following the government guidance. Overall, the Group received 37 per cent of the rent billed for Q2, by the end of March.
• In France, the flagship portfolio had been shut since 15^th March 2020 while in Ireland, the destinations had been closed since 25^th March 2020.
• Regarding the liquidity and balance sheet position, the Company had £1.2 billion of cash and undrawn committed facilities (at 31^st December 2019). On 25^th March 2020, the Group had drawn an additional £100 million of the facility. The Group was expecting to strengthen the liquidity further with disposal of retail parks.

Financial Highlights (for the year ended 31^st December 2019)

As on 25^th February 2020, the Group released its full-year results and major highlights were as follows:

• Net debt reduced significantly to £ 2.4 billion.
• Earnings was impacted by the ongoing disposal programme and hence, the EPS stood at 28 pence, reflecting 8.5 per cent decline against FY18.
• Net rental income plunged 11.2 per cent and stood at £308.5 million in FY19 as compared to £347.5 million in FY18.
• The adjusted profit declined 10.9 per cent and stood at £214.0 million in FY19 as compared to £240.3 million in FY18.
• The final dividend per share and full-year dividend per share stood flat against FY18 at 14.8 pence and 25.9 pence, respectively.

(Source: Presentation, Company Website)

Share Price Performance Analysis

(Source: Refinitiv, Thomson Reuters) - Daily Chart as of June 2nd, 2020, before the market close

HMSO’s shares were trading at GBX 109.85 on 2^nd June 2020 (before the market close at 12.10 PM GMT+1). Total outstanding M-Cap. (market capitalization) stood at approximately GBP 632.04 million and outstanding shares were 766.29 million. The relative strength index for 14 days was at 87.59.

Outlook - Reflecting Actions to Combat the Impact of COVID-19

Overall, the Board looks confident regarding the financial position of the business. Invariably, the COVID-19 crisis will have a material impact on the Company. Hence, the Group decided to suspend the final dividend of 14.8 pence per share for FY19. Further, the Company is conserving liquidity and cost-cutting measures to safeguard the long-term interests of shareholders. Considering the continually evolving nature of the pandemic, the Board is unable to quantify the financial impact and provide the full-year guidance for FY20. However, the Group has substantial liquidity in place, and with significant cost reduction and strict gearing position, it should emerge in the long run.