If you’re confused by this, you’re not the only one. Let’s take a look at what happened, why the share price went up on bad results, and whether I should be adding the stock to my portfolio.

A rising share price after a record loss

Hammerson is a real estate investment trust. This means the business buys properties, rents them out, and then returns 90% of its earnings to shareholders via a dividend. In the case of Hammerson, the properties that it invests in are shopping centres.

With the lockdown restrictions preventing non-essential stores from opening, many shopping centres and malls were predominantly deserted last year. And due to the reduced footfall, store owners struggled to keep up with lease payments.

Consequently, Hammerson’s rent collection dropped to 76%, new leases fell by 35%, and the overall occupancy level dropped from 97.2% to 94.3%. Combining all these factors led to the company reporting a £1.7bn loss for 2020.

Needless to say, those are pretty terrible results. So why did the Hammerson share price increase by 20%?

Reasons to be optimistic

The UK government recently unveiled its plans to ease lockdown restrictions. Under the proposed roadmap, non-essential stores will be able to re-open their doors as of April 12. This is fantastic news for Hammerson, store owners and the economy in general.

What’s more, economists at Deutsche Bank have estimated that more than £160bn of excess savings currently sit in bank accounts. This excess has built up from the simple fact that the usual consumer spending destinations have all been closed for months. An estimated 5%-10% of these savings are expected to be spent shortly after restrictions are lifted, leading to a significant increase in the UK’s GDP.

The pandemic has definitely created chaos for Hammerson’s business as well as its share price. However, it has successfully kept up with its expenses and even raised £800m in 2020 by rights issues and selling some of its properties. Another encouraging sign is that the management team has announced its intention to re-establish the stock’s dividend and pay a special dividend as well. If approved by shareholders at the annual general meeting in May, the combined dividend payments will be equal to 2.2p per share, which at today’s price of 38p, is a yield of 5.7%.

Hammerson share price: time to buy?

The worst does seem to have passed for Hammerson. At least that’s what I think. But it still has challenges ahead. For example, many retailers are in danger of going under post-pandemic and Hammerson may continue to see its occupancy levels drop.

However, assuming that everything goes smoothly and tenants are once again able to meet their rental fees, I believe the Hammerson share price will recover in 2021.

Having said that, I’m not particularly interested in adding the stock to my portfolio. Shopping centres have seen a slow decline in footfall even before the pandemic hit. As e-commerce becomes more prominent and delivery infrastructures more developed, I believe this downward trend will continue over the long-term. And with it, the Hammerson share price.

The post Will the Hammerson share price recover in 2021? appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Zaven Boyrazian does not own shares in Hammerson. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

It’s not hard to see why this real estate investment trust is so despised. With retail sales still sluggish as a recession bites, the owner of sites such as Highcross in Leicester and Victoria in Leeds is feeling the pain.

A few weeks ago, the firm revealed that just 41% of rent had been collected over its fourth quarter. This was lower than the 59% collected for Q3. It’s also a world away from the 97% achieved in Q1.

The longer the pandemic persists, the more pressure this puts on Hammerson’s balance sheet. Can another cash call be far away?

More hated than Hammerson

Trading at 20p a pop, shares in Hammerson look like a classic value trap. Even if ‘bricks and mortar’ retail is able to recover after the coronavirus subsides, the huge growth in online shopping shows no signs of abating. Factor-in recent management issues and the mid-cap looks to me to be more trouble than it’s worth.

Having said this, two FTSE 100 stocks — educational products and services provider Pearson (LSE: PSON) and supermarket Sainsbury (LSE: SRBY) have even bigger short positions.

Have the valuations of these top-table titans dropped far enough to now make them bargains for patient Foolish investors? 

Uncertain outlook

Pearson was a favourite with the shorting community long before the coronavirus arrived. Even now, it’s still the sixth most hated stock on the market according to shorttracker.co.uk. That seems fair based on recent trading.

Earlier in October, the self-styled ‘world’s learning company’ said that sales had declined by 14% over the first nine months of 2020 due to the closure of test centres and schools. Revenue in the UK was particularly hard hit by the cancellation of exams.

With “larger than usual uncertainties” likely to be felt in Q4, Pearson could only say that trading for the rest of 2020 would be “broadly in line with market expectations“. That’s hardly bullish. However, one could argue this is already priced-in.

Shares in Pearson currently trade on a little less than 13 times forecast FY21 earnings. That could make it a decent contrarian buy, especially as the FTSE 100 company said that online learning sales had helped to soften the blow from the pandemic. I’d certainly be more bullish on Pearson than I would on Hammerson.

Cheap for a reason

You might expect the UK’s second-biggest supermarket to be in something of a purple patch. After all, the coronavirus confined us to our homes earlier in the year. There’s a possibility of it doing the same again before 2020 ends. 

It would seem traders don’t agree. At the time of writing, Sainsbury is the eighth-most shorted stock on the market.

A forecast price-to-earnings (P/E) ratio of just under 11 suggests the shares are a bargain but I’m not so sure. As well as having to cope with competition from the German discounters and the Ocado/M&S tie-up, there’s a truckload of debt on the balance sheet. Margins are wafer-thin too.

Even if/when a vaccine to Covid-19 is found, I can’t see Sainsbury bouncing back to the same extent as other stocks. With dividends on hold, I’d steer clear.

The post These FTSE 100 shares are more hated than Hammerson. Are they too cheap for me to ignore? appeared first on The Twelfth Magpie.

More reading

• How much is needed in a Stocks and Shares ISA to aim to retire on £12,548 a year?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Pearson. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Cineworld shares: a horror story

You probably know that 2020 has been something of a horror show for the once-mighty company. It was priced around 220p a pop back in January. But Cineworld shares tumbled 95% to just 21p by March as the coronavirus ravaged the globe and lockdowns were enforced.

Some believe the worst to be over. Broker Peel Hunt, for example, recently slapped a price target of 180p on the stock! But I’m less enthusiastic for now. 

True, many of the company’s sites have now reopened. However, there’s still a dearth of new releases. Likely blockbusters (Top Gun 2, James Bond) have had their release dates put back as studios seek to maximise their investment returns.

News that movie-goers must wear masks when visiting is another setback. Why bother with a trip out when you can have a more comfortable experience via Netflix or Amazon Prime at home?

Ominously, Cineworld shares also remain among the most shorted on the London stock market. The only company more hated is Hammerson — the shopping centre owner-manager. When you consider just how much debt the former has on its books, this isn’t surprising.

Yes, any remotely positive comments from management on the company’s outlook next month could see Cineworld shares rally as shorters are ‘squeezed’ and forced to buy back in. With so much working against it right now, however, there are surely far easier ways of making money on the markets.

A better bet…

Cineworld shares aren’t the investment that’s given holders a rollercoaster ride in 2020. Fast-fashion behemoth Boohoo‘s (LSE: BOO) share price has been jumping all over the (online) shop thanks to an odd mixture of soaring sales and negative publicity.

Interim numbers are due on 30 September. I suspect another big move is on the cards. If recent sales momentum has been maintained, this should be in an upwards direction.

Back in June, the company reported “very strong trading and operational performance“. Despite the coronavirus crisis, it now expected to beat previous market expectations for the full-year. What a contrast to the state of affairs at Cineworld!

On the other hand, accusations of poor pay and working conditions in factories supplying clothes to the company have dented BOO’s reputation. An independent review is in progress but it’s clear investors will be looking for an update on what steps it has taken to rectify things. The share price could be punished again if this is deemed insufficient. 

As a holder, I’m clearly biased on Boohoo’s prospects. Notwithstanding this, I’d be surprised if recent woes prove anything more than temporary. Similar cases have involved retail titans such as Amazon, Associated British Foods (Primark) and JD Sports. They show that no business is beyond reproach, particularly those with links to the rag trade. They’ve all since recovered.

As long as issues are swiftly rectified, a sustained rise in Boohoo’s price looks far more likely than it is for Cineworld shares. 

The post Here’s why I think Cineworld and Boohoo are UK shares to watch in September appeared first on The Twelfth Magpie.

More reading

• Prediction: by 2027, this battered FTSE AIM stock could turn £3,000 into…

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Paul Summers owns shares in boohoo group. The Motley Fool UK owns shares of and has recommended Amazon. The Motley Fool UK has recommended Associated British Foods and boohoo group and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Things just get worse for the Hammerson (LSE: HMSO) share price. The shopping centre operator’s stock has lost 90% of its value over the last five years. It’s down another 7% this morning after revealing an 84% drop in first-half adjusted profits to £17.7m, due to Covid-19 lockdowns.

Hammerson also announced plans to raise £552m through a rights issue, and another £274m by selling its 50% interest in Via Outlets to venture partner APG. The FTSE 250 group hopes this will strengthen its balance sheet, reduce debt, and boost liquidity. Investors are clearly unconvinced, amid fears of a fresh stock market crash.

Hammerson gets hammered

Previous plans to raise £400m by selling retail parks collapsed after private equity firm Orion pulled out in May. Chief executive David Atkins is now overhauling the business to cope with “unprecedented conditions,” but it won’t be easy. He hopes to focus on “flagship destinations and mixed-use City Quarters,” and today highlighted an encouraging recent increase in footfall, as shoppers return. Good luck to him.

The only thing to go right for Hammerson was the collapse in merger talks with rival Intu two years ago. Intu has since gone bust in the stock market crash, showing just how hard this sector has been hit. Hammerson has net debt of £3bn and a market-cap of £396m. It trades at just two times earnings, but even at that dirt-cheap price I wouldn’t buy it today.

Broadcaster ITV (LSE: ITV) is another company whose share price was in decline even before the stock market crash, falling by three quarters over five years. 

Today, it reported a collapse in pre-tax profits for the six months to 30 June, down 93%, from £222m to just £15m. While more people sat in front of their TV screens during the lockdown, advertising revenue “slowed to a trickle” as worried companies conserved cash. The postponement of big sporting events, such as the Euro 2020 football championships, didn’t help.

ITV can survive the stock market crash

With the economy heading for dark times, that advertising revenue isn’t going to recover in a hurry. Social distancing rules forced ITV to put 230 programmes on ice, hitting production sales too.

CEO Carolyn McCall talked of “an upward trajectory with productions restarting and advertisers returning.” But the outlook remains uncertain. Shareholders took the bad news on the chin, with the ITV share price down about 1%.

ITV could be a stock market crash buying opportunity, if you understand the risks. Today’s bargain valuation, of just 4.38 times earnings, is tempting. Revenues today were slightly better than analysts expected, and could recover when the economy picks up. Net debt looks manageable at £783m. A strong balance sheet helps in days like these.

I would certainly pick the ITV share price ahead of Hammerson.

The post Stock market crash: one dirt-cheap FTSE stock I’d buy today and one I’d avoid appeared first on The Twelfth Magpie.

More reading

• £500 gets 617 shares in one of the top FTSE income stocks to buy!
• Here’s how to invest £3,600 in UK shares to target a 7% dividend yield
• Should I buy ITV shares for my ISA ahead of the World Cup?
• With dividend yields averaging above 7%, are these 2 UK shares worth considering?

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended ITV. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Shares in this company have taken a hammering over the past 12 months as investors have jumped ship. The retail sector is one of the most hated on the market right now, and Halfords is no exception.

However, it seems as if the business is coping quite well in the current environment. According to a trading update for the 20 weeks to August 16, total group sales declined by 3.9% with Autocenter sales rising 2.4% and general retail sales falling 4.8%. 

Management blames poor summer weather and weaker consumer confidence for this sales performance. They believe the uncertain economic environment is also hurting demand for big-ticket items.

But while sales are coming under pressure, costs are falling. As a result, today’s trading update notes that the group’s gross profit margin across the business has improved year-on-year. Online sales are also outperforming the rest of the business. Total online sales grew 8.4% year-on-year for the 20 weeks to August 16.

Margin of safety

Considering the above, it doesn’t seem as if the outlook for Halfords is as bleak as the market is suggesting. 

Therefore, I think now could be an excellent time to buy the stock. After recent declines, it is trading at a forward P/E of just 7.5 and supports a dividend yield of 10.2%. In my opinion, these numbers give investors buying today a healthy margin of safety.

Deep value

Another dividend stock that currently offers a dividend yield of more than 10% is real estate investment trust Hammerson (LSE: HMSO). 

At the time of writing, shares in this business look severely undervalued. The stock is selling at a forward P/E of just 8.5 and a price-to-tangible-book-value of only 0.4. This implies that the value of the company’s property is worth 67% more than the current market capitalisation. 

On top of this bargain valuation shares in Hammerson support a dividend yield of 11.3%.

Retail market

Hammerson is selling at such a cheap valuation because the market is concerned about the value of its properties. Other commercial property-focused investment trusts have recently announced big write-downs on the value of their property portfolios, and there’s speculation Hammerson could be next.

I think it would be naive to suggest that the company is immune to asset write-downs. Nevertheless, I think it is unlikely its properties are worth 60% less than the current book value.

This implies that at the time of writing, there is a wide margin of safety in the stock. Even if the value of its properties are marked down by 30% (which I think is unlikely) investors buying today would still be acquiring shares in the business at below book value. Then there’s the 11.3% dividend yield to consider.

That’s why I think Hammerson could be an excellent investment at current levels.

The post 2 dividend stocks yielding 10% I’d buy for an ISA today appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

As you can imagine, the stock isn’t without risks.

Hammered

This morning Hammerson published its half-yearly unaudited results after a tough year that has seen its share price almost halve to 265p. In February last year the £2bn real estate investment trust (REIT) dropped out of the FTSE 100 as investors recoiled at its move to snap up rival Intu, which they saw as doubling down on its exposure to struggling shopping centres.

The UK’s traditional bricks and mortar retail sector is under massive pressure as it struggles to keep up with the online shopping phenomenon, and Hammerson is responding by overhauling its business and making disposals, which totalled £456m over the period, 90% of its 2019 target of £500m. It is committed to the sale of UK retail parks over the medium term and made disposals of £33m in the first half.

This has cut debt to £3.1bn with gearing 61%, despite the fact that deals are taking longer in the current “tough environment”. 

CEO David Atkins said with high street fashion under pressure it is shifting towards categories with greater customer appeal and rental growth potential, with more than 90% of new leasing to leading consumer and food and beverage (F&B) brands.

Delivering the goods

Performance was stronger in Ireland and France than in the UK, “which demonstrates the benefits of our diversified portfolio”. However, it hasn’t given up on the UK, submitting planning applications for Martineau Galleries in Birmingham and The Goodsyard in Shoreditch.

The £2bn group trades at just 9.6 times forecast earnings, adding a bargain valuation to its dizzying yield (covered 1.1 times). The share price is now at a whopping 60% discount to net asset value, which suggests a real opportunity, but with net rental income down 12.3% to £156.6m, investors are shying away. Hammerson is a risky recovery play that could pay off if we get a positive Brexit resolution and consumer confidence rebounds. That still leaves the internet shopping problem, though. Another danger is that further write-downs are a possibility.

Segro grows

All is not lost in the property sector as fellow REIT Segro (LSE: SGRO) has been booming, its share price up 20% in the last six months, and 120% over five years.

Last week, it reported “another period of strong performance with good earnings momentum driven by rental growth, active asset management and a record level of developments”, as its portfolio of “high quality and well-located warehouse assets” enjoys low vacancy rates and is benefiting from the surge in online shopping.

Adjusted pre-tax profit rose 19% to £131.8m, with profit before tax at £410.8m, as the online retail revolution drives up demand for its warehouses. The £8.6bn group boasts a strong pipeline of developments and acquisitions and increased its interim dividend by 13.5% to 6.3p.

The Segro share price currently trades at 7.3 times earnings and although the yield is much lower than Hammerson’s, a forecast 2.6% with cover of 1.2, investor demand remains strong with the REIT trading at a relatively small 15% discount to net asset value. Segro looks the more attractive bet, despite its dramatically lower yield.

The post I’d buy this FTSE 100 growth stock and 10% yielder from the FTSE 250 appeared first on The Twelfth Magpie.

More reading

• Up 16% in a day! Here’s why shares in this FTSE 100 dividend machine are soaring!
• Forget buy-to-let! Aim for a million with a Stocks and Shares ISA instead

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Today, I want to look at two high-yield stocks that are in the news at the moment. Should we be buying?

Shoddy workmanship?

Shares in FTSE 100 housebuilder Persimmon (LSE: PSN) fell by 6% in early trading on Monday morning. The dip was in response to weekend press reports that government Housing Secretary James Brokenshire is concerned about the firm’s use of leaseholds on new properties and problems with build quality.

The worry for investors is that nearly half of Persimmon’s sales are made using the government-funded Help-to-Buy scheme.

This scheme is due to be extended from April 2021 to March 2023. But my reading of this morning’s market reaction suggests that Persimmon may have to alter some of its commercial practices in order to continue participating in Help-to-Buy. This could put pressure on profit margins.

Too profitable?

Persimmon’s most recent accounts show an operating margin of almost 28%. That’s significantly higher than direct rivals such as Redrow (20%) or Barratt Developments (18%).

Why is Persimmon so much more profitable? It’s not clear to me, but I think there’s a chance the company’s margins could fall to more typical levels over the coming years. For now, the 10% dividend yield looks safe. But I’ve downgraded my view on this stock to hold.

Unhappy shoppers

Another property stock whose management is facing investor criticism is shopping centre owner Hammerson (LSE: HMSO). Last year saw the company rejected a takeover bid at 635p per share and made a takeover offer for rival Intu, before changing its mind at the last minute. Hammerson shares now trade at just 365p.

Figures released by the company today show that its performance is continuing to suffer as a result of problems in the retail sector. Occupancy fell from 98.3% to 97.2% last year and new leasing activity dipped 17%.

The value of Hammerson’s property portfolio fell 5.9% to £9.9bn, while adjusted profit was 2.4% lower, at £240m.

The right time to start buying?

We don’t yet know how much further the value of retail property will fall. Big shopping centres are not sold very often, so it’s hard to get an idea of realistic market prices.

However, what we do know is that Hammerson shares now trade at a 50% discount to their net asset value of 738p per share. Such a wide discount is unusual. It could be a contrarian buying opportunity, or it might mean that further write-downs are likely.

What happens next?

Two key risks for investors are the group’s debt levels and the safety of the dividend. Management hope to cut debt this year by selling another £500m of property. But property sold last year was priced 7% below its 2017 book value. I suspect further discounts will be needed for sales this year.

So far, the dividend has been held, leaving the shares trading with a 7% yield. That’s tempting, but I feel management lack credibility after last year. In my view, there are better buys elsewhere in this sector.

The post Is this 10% yielder a FTSE 100 bargain or an investment trap? appeared first on The Twelfth Magpie.

More reading

• Down 63% and yielding 6.3%! Is this FTSE 100 share a brilliant bargain?
• This 5.5%-yielding income stock’s at a 13-year low and cheap to-boot! Time to consider buying?
• Down 65% but yielding 6%! Is this FTSE 100 dividend stock an unmissable bargain?
• A 6.7% forecast yield and 53% below ‘fair value’! 1 stunning FTSE income stock for investors to consider today?
• How much do you need in an ISA to target a £2,066 monthly passive income in 2066

Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Redrow. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

One concern is that over the long term, I’d almost certainly have enjoyed better returns by buying dividend-paying FTSE 100 stocks and reinvesting the cash. And I’d have had to do a lot less actual work too. The other is the problem of diversification. I have one rental house, and if that one is performing badly (though being vacant or having a problem tenant), there’s nothing else boost my income.

But renting properties, either residential or business, can still be very profitable, so how would I go about it if I started again? I’d go for pooled real estate investment businesses, particularly investment trusts.

Overlooked bargain?

I examined Hammerson (LSE: HMSO) earlier this year, soon after the on-off merger with Intu Properties had come to nothing. I thought it was a good investment then, but the share price has since gone into a bit of a slump — the shares are down 18% since the start of 2018.

That surely reflects the general weak sentiment towards property prices in general and the retail sector specifically — Hammerson invests in business properties, focusing on shopping centres. A lot of retail stocks are similarly falling in price, as are our listed housebuilders — despite the latter being strongly cash generative and paying some of the best dividends around.

I see that as a mistake by the markets, and I reckon Hammerson shares are oversold. We’re looking at forward P/E multiples near the Footsie’s long-term average of around 14, but this is a company that is expected to see its dividend yield hiked to around 6%.

The earnings growth of the past few years looks set to flatten out this year and next, and that must also be contributing to the weak share price performance. But I see it as a buying opportunity.

New development

Grainger (LSE: GRI), which bills itself as “the UK’s largest listed residential landlord and leader in the UK private rented sector,” is a way into the residential market that I like the look of.

Though its share price has had a modest year so far in 2018, its 3% rise is still ahead of the FTSE 100’s 7% fall. And over five years, Grainger shares are up more than 40% (while the Footsie has managed a meagre 6%).

On Friday, Grainger revealed its latest acquisition, of a 108-home build-to-rent development in Tottenham Hale, North London, for approximately £41m. Grainger will forward fund the development, to be carried out by Waterside Places, and it’s expected to provide gross yields of around 5.5% to 6% — which looks attractive to me.

Planning consent already exists, though there are a number of outstanding conditions — but Grainger expects those to be satisfied and construction to start in early 2019, with completion anticipated for approximately two years later.

Grainger’s dividend yields are modest at around 2%, but they’re progressive. And the stock’s overall yield makes it look like another attractive property option to me.

The post Buy-to-let? I’d buy this Real Estate Investment Trust instead appeared first on The Twelfth Magpie.

More reading

• Which UK stocks have the most to lose (or gain) in an Andy Burnham government?
• How are these FTSE 250 growth and dividend stocks so cheap?

Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Resilience

Landsec (LSE: LAND), the UK’s largest listed commercial property company, is no exception — its shares trade at 35% discount to its adjusted dilute net asset value of 1,403p per share. And that’s in spite of the underlying resilience of its investment portfolio and strong leasing activity in recent months.

Adjusted diluted earnings per share, a measure of underlying profitability, increased from 48.3p last year, to 53.1p, on the back of the completion of new developments and a reduction of interest costs. The company even managed a 14.7% boost to its full-year dividend to 44.2p, giving its shares a yield of 4.8%.

Valuation movement

Investors were perhaps more concerned about the 1% decline in its net asset value for the year. The value of its investment portfolio fell by 0.7%, giving Landsec a valuation deficit for the year of £91m.

However, the net asset value decline also reflected the refinancing of £1.5bn worth of legacy debts. This was a case of short-term pain for long-term gain, as it lowered its weighted average cost of debt to 2.6%, from 4.2% last year.

Retail sector

Also offering investment potential within the sector is Hammerson (LSE: HMSO). The retail-focused REIT, which recently dropped its plans to buy rival shopping centre owner Intu Properties (LSE: INTU), is reshaping its strategy in an attempt to unlock value for shareholders.

Hammerson’s bid to buy Intu failed as it was unable to garner significant shareholder support amid fears of the heightened risks of the proposed merger. Now, the company could itself be looking at further asset disposals as it seeks greater exposure to higher-growth segments of the retail market and assesses the potential for greater cash returns to shareholders.

It has so far announced plans to exit the retail park sector over the medium-term and initiated a £300m share buyback programme. With shares currently trading at a 37% discount to net asset value of 776p per share, there’s significant potential upside from a re-rating of its shares as the company repositions its property portfolio.

Intu

Unsurprisingly, Intu’s shares have fared even worse following the aborted takeover by Hammerson. Shares in the company trade at a 56% discount to net asset value of 362p per share, reflecting concerns about the group’s high leverage and falling property valuations.

In the six months of 2018, Intu took a massive £650m property revaluation hit, as the market value of its investment properties dropped from £10.5bn, to £9.8bn. Aside from the obvious impact to net asset value, which fell by 12% over the period — more worryingly, the valuation deficit also inflated its debt to assets ratio to 48.7%.

If property valuations continue to trend downwards, Intu, which already has an above-average financial gearing in the sector, could be forced to raise equity or cut dividends to prevent its loan-to-value ratio from exceeding 60%.

Intu’s shares are currently one of the highest-yielding in the REIT sector, with a yield of 8.8%.

The post Income investors: 3 embarrassingly cheap REITs with yields of up to 8.8% appeared first on The Twelfth Magpie.

More reading

• How much do you need in an ISA to earn £19,999 a year on top of the State Pension
• How much is needed in FTSE 100 stocks to make £1,547 in monthly second income?

Jack Tang has positions in Landsec and Hammerson. The Motley Fool UK has recommended Landsec. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Today, I’m looking at a FTSE 100 stock from my own portfolio that I’m planning to sell in August. I’ll also consider the outlook for another big-cap that’s out of favour at the moment.

I’m losing hope

Value investing requires a patient, long-term outlook. But there are times when you have to accept that your money could be earning better returns elsewhere. I’m beginning to feel that way about Asia-focused bank Standard Chartered (LSE: STAN).

I’ve owned shares in this bank since 2015, hoping that the stock’s 30% discount to book value would drive a re-rating of the share price. Unfortunately, I underestimated how long it would take the bank to resolve its legacy issues and return to a decent level of profitability.

In today’s half-year results, the bank said underlying pre-tax profit rose by 23% to $2.4bn. Bad debt levels fell by 50%, and the interim dividend was resumed at 6 cents per share.

Good, but not enough?

The bad news is that, once again, the bank’s overall performance was below expectations. Revenue of $7.65bn fell short of consensus forecasts for $7.86bn. And operating costs rose by 7% to $5.1bn.

Higher costs limited the improvement to the group’s return on equity, which rose by 1.5% to 6.7%. That’s still well short of the bank’s medium-term target of 8%, which now seems unlikely to be reached until next year at the earliest.

A second concern is that costs are expected to rise again during the second half. Given that revenue is expected to be slightly lower during this period, I suspect analysts may cut their profit forecasts for the full year after today’s results.

I’m also frustrated that after 5.5 years, Standard Chartered still hasn’t managed to achieve a compliance programme that will satisfy the US Department of Justice. As a result, its operations remain subject to supervision under a Deferred Prosecution Agreement.

Although the shares look cheap, I think they’re probably correctly priced at the moment. I see better value elsewhere.

This could be a falling knife

It’s no secret that many major UK retailers are struggling. A number are in the process of trying to close stores, or negotiate rent reductions. So business isn’t easy for retail landlords, such as FTSE 100 member Hammerson (LSE: HMSO).

Shares in this retail property specialist trade at a 33% discount to its net asset value of 776p per share. But in my view this valuation is probably too high.

Major shopping centres rarely change hands, so it’s hard to know what a realistic market price might be.  But Hammerson has sold £300m of retail parks so far this year, at a 10% discount to their December 2017 book value.

Rival Intu Properties reported a 12% fall in the value of its property portfolio for the six months to 30 June.

I don’t see any obvious reasons why Hammerson’s portfolio won’t be subject to similar pressures. I believe management is discredited after recent failed takeover activity and would avoid this stock for now.

The post Standard Chartered isn’t the only FTSE 100 stock I’d sell in August appeared first on The Twelfth Magpie.

More reading

• Down 7% to around £19! Is now the time for investors to consider this FTSE 100 banking giant’s deeply-undervalued shares?

Roland Head owns shares of Standard Chartered. The Motley Fool UK has recommended Standard Chartered. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.