When I wrote about Hammerson (LSE: HMSO) back in February, its board had agreed to acquire fellow real estate group Intu. I saw little merit in the deal. Indeed, I thought it had a whiff of late-stage bull market madness and I rated the stock a ‘sell’.
However, much has happened since February. Some of Hammerson’s major shareholders were as critical as me of the Intu deal, and the board backed out of it. At the same time, Hammerson itself received a takeover approach, pitched at 635p a share, from French shopping centres giant Klépierre, which it rejected. Finally, this week Hammerson issued a strategy update alongside its half-year results. Does any of this change my view of the stock?
Big discount to NAV
Hammerson’s shares have made a bit of a recovery since the turmoil earlier this year. However, at not much above 500p, they still trade at a big discount to the latest net asset value (NAV) of 776p. In addition to this marker of value, the company possesses another in the shape of a prospective 5.2% dividend yield.
The board this week announced a radical reshaping of strategy, focusing solely on “Flagship retail destinations and Premium Outlets.” It’s set a target of disposing of £1.1bn of assets by the end of 2019 and to completely exit the UK retail park sector (a portfolio of 15 units) in the medium term.
Challenged retail market
I see an elevated risk of Hammerson becoming a value trap for investors. Retail parks have delivered “sub-standard financial results” for the company in recent years and contracts for the sale of two of these announced earlier this week were at a discount of 10% to their book value. It may be the case that rather than the 500p share price rising towards the 776p NAV, the NAV falls towards the share price, due to asset values declining in a challenged retail market that’s suffering waves of administrations and Company Voluntary Arrangements.
Because of the NAV value-trap risk and my lack of confidence in Hammerson’s management, I continue to rate the stock a ‘sell’. I think not only was the idea of the Intu deal daft, but also that the 635p a share offer from Klépierre would have been a decent result for shareholders.
Super-cheap P/E
I’m convinced fellow FTSE 250 stock Polymetal International (LSE: POLY) represents a stronger proposition for investors. This Russia-focused gold and silver producer does come with some political risk, as with most precious metals miners. However, it’s a long established business in the territory and, at a share price of around 670p, I reckon the current-year forecast price-to-earnings (P/E) ratio of 9.6 and prospective dividend yield of 5.1% are far too generous.
Last month, the company announced the start of its new Kyzyl mine in Kazakhstan. Impressively, this was a full quarter ahead of schedule and came in 3% under budget. Looking ahead to 2019, analysts are expecting Polymetal to deliver over 30% earnings growth — bringing the P/E down to just 7.3 — and a similar uplift in the divided, taking the yield up to 6.8%. I believe there’s a strong chance of the share price rising to bring the P/E and yield to more normal levels. As such, I rate the stock a ‘buy’.
