European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

<a href="https://www.smartkarma.com/entities/hammerson-plc" target="_blank" data-smartkarma-citation="entities:21974:1" rel="noopener">Hammerson PLC (HMSO LN)</a> announced on 6 August a fully covered highly dilutive <a href="https://www.hammersontransaction.com/system/files/2020/launch-announcement.pdf" target="_blank" rel="noopener">rights issue</a> combined with a sale of VIA Outlets; both should raise £825 mn gross proceeds (c. £794 mn net) to recapitalise the business.
<ul>
<li>Following completion of both the rights issue and the disposal of VIA, Hammerson's net debt would reduce to £2.2 billion on a pro-forma basis as at 30 June 2020 and LTV would fall to 41.7% on a fully proportionally consolidated basis.</li>
<li>Those £794 mn net proceeds seem somewhat far from what's needed to restore Hammerson to a more comfortable leverage, another £500 mn, in my view.</li>
<li>Hammerson reported a £1.09 bn loss in H1 2020 (vs. a £319 mn loss in H1 2019).</li>
</ul>
The capital increase is highly dilutive. Considering the share consolidation, the UK issue price of 15p represents a discount of 94.6% to the closing price of 279.80 p on 5 August, and a 41.4% discount to the TERP of 25.59 p (by reference to the LSE closing price on 5 August).
Shares closed at 47p on 7 August, 15% below the closing price prior to the announcement.
Following completion of both the rights issue and the disposal of VIA, Hammerson's net debt would reduce to £2.2 bn pro-forma (57% gearing) as at 30 June 2020 and LTV would fall to 41.7% on a fully proportionally consolidated basis (vs. a dangerously high 51%). The focus, according to Hammerson, remains on further disposals to reduce debt over the medium term.
From a covenant perspective, Hammerson's announcements buy some time and allow trading and capex to continue in the short term. But I have already pointed out that Moody's has placed the rating under review, and that a downgrade to high yield is not unlikely (with higher financing costs). This and the refinancing profile should put pressure on Hammerson.
It is also worth considering that these businesses have been the growth drivers for Hammerson over the last years, and disposing of them is akin to selling the family silver.
I see further downside in Hammerson. The analyst consensus on S&amp;P Market Intelligence is underperform, and I also recommend a straight short in Hammerson.
Pair trade. Over the last two years, Hammerson has underperformed <a href="https://www.smartkarma.com/entities/british-land-co-plc-the" target="_blank" data-smartkarma-citation="entities:21839:1" rel="noopener">British Land Co (BLND LN)</a> by a lot. The S&amp;P Market Intelligence analyst consensus on British Land is neutral BLND. Looking at the charts it seems that Hammersons could outperform British Land in the short term, if it does, would be a good time to short Hammersons and buy British Land on a bounce in the price ratio.

Hammerson PLC (HMSO LN) announced on 6 August a fully covered highly dilutive rights issue combined with a sale of VIA Outlets; both should raise £825 mn gross proceeds (c. £794 mn net) to recapitalise the business.

Following completion of both the rights issue and the disposal of VIA, Hammerson's net debt would reduce to £2.2 billion on a pro-forma basis as at 30 June 2020 and LTV would fall to 41.7% on a fully proportionally consolidated basis.
Those £794 mn net proceeds seem somewhat far from what's needed to restore Hammerson to a more comfortable leverage, another £500 mn, in my view.
Hammerson reported a £1.09 bn loss in H1 2020 (vs. a £319 mn loss in H1 2019).

The capital increase is highly dilutive. Considering the share consolidation, the UK issue price of 15p represents a discount of 94.6% to the closing price of 279.80 p on 5 August, and a 41.4% discount to the TERP of 25.59 p (by reference to the LSE closing price on 5 August).
Shares closed at 47p on 7 August, 15% below the closing price prior to the announcement.
Following completion of both the rights issue and the disposal of VIA, Hammerson's net debt would reduce to £2.2 bn pro-forma (57% gearing) as at 30 June 2020 and LTV would fall to 41.7% on a fully proportionally consolidated basis (vs. a dangerously high 51%). The focus, according to Hammerson, remains on further disposals to reduce debt over the medium term.
From a covenant perspective, Hammerson's announcements buy some time and allow trading and capex to continue in the short term. But I have already pointed out that Moody's has placed the rating under review, and that a downgrade to high yield is not unlikely (with higher financing costs). This and the refinancing profile should put pressure on Hammerson.
It is also worth considering that these businesses have been the growth drivers for Hammerson over the last years, and disposing of them is akin to selling the family silver.
I see further downside in Hammerson. The analyst consensus on S&amp;P Market Intelligence is underperform, and I also recommend a straight short in Hammerson.
Pair trade. Over the last two years, Hammerson has underperformed British Land Co (BLND LN) by a lot. The S&amp;P Market Intelligence analyst consensus on British Land is neutral BLND. Looking at the charts it seems that Hammersons could outperform British Land in the short term, if it does, would be a good time to short Hammersons and buy British Land on a bounce in the price ratio.

Equity analyst UK & Europe, UK Long Short

Peter Toeman

Equity analyst UK & Europe

Accelerating Tomorrow’s Independent Research

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Thematic (Sector/Industry)

The UK stockmarket has enjoyed a buoyant first quarter keeping track with other developed markets. This might appear somewhat surprising given political turmoil and the existential risk posed by Brexit but it seems that investors always anticipated that Parliament would veto the most damaging "No-deal" option. In this regard investors have been more far-sighted than right-wing Conservative politicians.So where to now for FTSE100 ? The index is back to the level of early 18Q4 which seems appropriate given the anticipated economic downturn recession failed to materialise. The old adage "Sell in May and go away" comes to mind. As strategy this has worked quite well. Over the 25 years the market has been lower at the at the end of the second quarter than at the beginning 42%  of the time, producing an average return of minus 0.4%.In terms of individual companies, Tesco (which we had in the long portfolio) is amongst the top ten performers year-to-date, and Centrica (in the short portfolio) is the second worst.

The UK stockmarket has enjoyed a buoyant first quarter keeping track with other developed markets. This might appear somewhat surprising given political turmoil and the existential risk posed by Brexit but it seems that investors always anticipated that Parliament would veto the most damaging "No-deal" option. In this regard investors have been more far-sighted than right-wing Conservative politicians.So where to now for FTSE100 ? The index is back to the level of early 18Q4 which seems appropriate given the anticipated economic downturn recession failed to materialise. The old adage "Sell in May and go away" comes to mind. As strategy this has worked quite well. Over the 25 years the market has been lower at the at the end of the second quarter than at the beginning 42%  of the time, producing an average return of minus 0.4%.In terms of individual companies, Tesco (which we had in the long portfolio) is amongst the top ten performers year-to-date, and Centrica (in the short portfolio) is the second worst.

Equity Bottom-Up

A ‘perfect storm’ is enveloping UK retailers. Brexit uncertainty is reducing footfall and sales and the structural shift to e-commerce continues unabated. But if things are tough for retailers they are equally bad for UK property companies with a significant proportion of retail in their portfolios. Declining rents and rising yields are not positive for valuations. Landlords also have to deal with an increasing incidence of tenant insolvencies. 
British Land: what does it do ?
British Land is the third largest property company in the FTSE100 with a market capitalisation of £5.6bn and property portfolio of £12.8bn split almost equally between Retail and Central London offices. 
Why is it in the Short portfolio ?
Trading pressure in the retail sector is translating into rent reductions for landlords, or worse, vacant space. Yields are rising due to decreased investment demand. Property consultancies anticipate a double digit decline in retail capital values over the next two years. The consensus expectation is for British Land's EPRA NAV to decline 8% over the next two years.

A ‘perfect storm’ is enveloping UK retailers. Brexit uncertainty is reducing footfall and sales and the structural shift to e-commerce continues unabated. But if things are tough for retailers they are equally bad for UK property companies with a significant proportion of retail in their portfolios. Declining rents and rising yields are not positive for valuations. Landlords also have to deal with an increasing incidence of tenant insolvencies. 
British Land: what does it do ?
British Land is the third largest property company in the FTSE100 with a market capitalisation of £5.6bn and property portfolio of £12.8bn split almost equally between Retail and Central London offices. 
Why is it in the Short portfolio ?
Trading pressure in the retail sector is translating into rent reductions for landlords, or worse, vacant space. Yields are rising due to decreased investment demand. Property consultancies anticipate a double digit decline in retail capital values over the next two years. The consensus expectation is for British Land's EPRA NAV to decline 8% over the next two years.    

British Land (BLND:LN): Retail in Reverse

With just two weeks left before the UK is set to leave the EU, the shape of the arrangements with country's largest trading partners is still to be decided. Imminent political developments will determine whether Brexit is hard, soft, deferred, or aborted.
The UK's principal share index the FTSE 100 is virtually unchanged since we established our Long/Short portfolio a month ago. Results from Lloyds and Centrica have lead to useful outperformance and underperformance respectively. The M&amp;S joint venture with Ocado is judged by investors to have added a lot more value to the latter than the former. We have been wrong-footed by Melrose Industries, but heck, there is always one.
Remembering that no one ever got poor from taking  profits,  we have closed out our long position in Lloyds Banking.  
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<div class="content-caption">S&amp;P Capital IQ</div>
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With just two weeks left before the UK is set to leave the EU, the shape of the arrangements with country's largest trading partners is still to be decided. Imminent political developments will determine whether Brexit is hard, soft, deferred, or aborted.
The UK's principal share index the FTSE 100 is virtually unchanged since we established our Long/Short portfolio a month ago. Results from Lloyds and Centrica have lead to useful outperformance and underperformance respectively. The M&amp;S joint venture with Ocado is judged by investors to have added a lot more value to the latter than the former. We have been wrong-footed by Melrose Industries, but heck, there is always one.
Remembering that no one ever got poor from taking  profits,  we have closed out our long position in Lloyds Banking.  


S&amp;P Capital IQ


The political decision to exit the European Union has unpredictable negative consequences for both the UK economy and stockmarket.  A tough market background and Brexit concerns have reduced in-flows into Wealth and Investment Management companies. This growth hiatus could last for some time.  
<h2>Hargreaves Lansdown: What does it do ?</h2>
Hargreaves Lansdown is a wealth manager and private client stockbroker with a market value of  GBP8bn. It provides the UK's largest direct to investor platform administering £86bn of investments for more than 1.1m active clients
<h2>Why is it in the Short portfolio ?</h2>
Interim figures for the 6 months to December 2018, (published 29th Jan)  mark a deterioration in operating performance brought about by adverse market conditions. Assets under administration declined and net new business was 25% down on the prior year. Earnings per share increased 4%. The share price declined 6% on the day of the results but has subsequently been stable leaving the group on a forward multiple of over 30x. Unless the retail investment market recovers quickly this premium rating may prove vulnerable. 
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<div class="content-caption">S&amp;P Capital IQ</div>

The political decision to exit the European Union has unpredictable negative consequences for both the UK economy and stockmarket.  A tough market background and Brexit concerns have reduced in-flows into Wealth and Investment Management companies. This growth hiatus could last for some time.  
Hargreaves Lansdown: What does it do ?
Hargreaves Lansdown is a wealth manager and private client stockbroker with a market value of  GBP8bn. It provides the UK's largest direct to investor platform administering £86bn of investments for more than 1.1m active clients
Why is it in the Short portfolio ?
Interim figures for the 6 months to December 2018, (published 29th Jan)  mark a deterioration in operating performance brought about by adverse market conditions. Assets under administration declined and net new business was 25% down on the prior year. Earnings per share increased 4%. The share price declined 6% on the day of the results but has subsequently been stable leaving the group on a forward multiple of over 30x. Unless the retail investment market recovers quickly this premium rating may prove vulnerable. 

S&amp;P Capital IQ

Hargreaves Lansdown (HL/:LN) No Flow, No Go

United Kingdom

British Land Company plc invests, both directly and through joint ventures, in income-producing and freehold commercial properties in order to maximize their growth and potential.  The Company trades, finances, and develops property. Their portfolio consists of offices, retail superstores, shopping centers, leisure, industrial, and distribution spaces.

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British Land Co (BLND LN)

Hammerson's Rescue Rights Issue

Hammerson PLC (HMSO LN) announced on 6 August a fully covered highly dilutive rights issue combined with a sale of VIA Outlets; both should raise...

Jesus Rodriguez Aguilar

FTSE 100 Long/Short: No 2 No Deal

The UK stockmarket has enjoyed a buoyant first quarter keeping track with other developed markets. This might appear somewhat surprising given...

Boost Research

British Land (BLND:LN): Retail in Reverse

A ‘perfect storm’ is enveloping UK retailers. Brexit uncertainty is reducing footfall and sales and the structural shift to e-commerce continues...

Boost Research

FTSE 100 Long/Short: Beginner's Luck

With just two weeks left before the UK is set to leave the EU, the shape of the arrangements with country's largest trading partners is still to be...

Boost Research

Hargreaves Lansdown (HL/:LN) No Flow, No Go

The political decision to exit the European Union has unpredictable negative consequences for both the UK economy and stockmarket. A tough market...

Boost Research

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