Why I’d sell this FTSE 100 company ahead of its interim results

Why this Fool is advising extreme caution before investing in this FTSE 100 (INDEXFTSE: UKX) company.

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The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

How often have you heard investors waxing lyrical about the benefits of investing in bricks and mortar? In truth, I have also been guilty in the past of such unquestioning belief. However, this faith has been shaken in recent years following the poor performance of some property companies. One such company is Land Securities (LSE: LAND), which has seen a plunging share price matched by falling asset values.

On the 1st of May this year, prior to the release of Land Securities’ annual report, the share price stood at 920p. At time of writing, despite an increase in the dividend, the shares have fallen to 826p. This represents about a 10% drop in only 7 weeks, which is hardly a ringing endorsement of the company’s future prospects by Mr. Market.

What’s causing the fall?

Broadly, Landsec’s portfolio of properties encompass retail, leisure, office and residential. With the exception of residential, all of these sectors are under exceptionally intense pressure.

Undoubtedly, Landsec’s retail segment is suffering the most due to the success of e-commerce sites such as Amazon. In addition to Amazon, there are a variety of new companies chipping away at markets traditionally supplied by “bricks and mortar” retailers. Witness the booming profits of the British online fashion retailer Boohoo compared to sliding earnings at former giants of fashion such as Arcadia and Ted Baker.

Even big ticket items such as furniture are not escaping the steady forward march of web sales. Nowadays, a relatively new American company, Wayfair, offers buyers the opportunity to purchase all manner of household goods at low cost via its website.

The result of the slump in the popularity of big name retailers was laid bare in the annual results released by Landsec in May. Revealed was a sizeable loss brought about by the demise of such companies as Homebase and Poundworld. Further pain is expected as a consequence of the well-publicized tribulations at Arcadia and Debenhams. If these losses were not bad enough, Landsec’s retail portfolio also experienced a sharp drop in value.

I imagine everyone on the planet is by now aware that the UK is leaving the European Union. Since the announcement, there has been an unfaltering stream of news indicating the repercussions for the office sector of this divorce. Regular reports have appeared telegraphing the intensions of the behemoths of banking and insurance that they will expand their offerings on mainland Europe and downsize their London operations. I think it’s fair to assume that Brexit is a negative development for Landsec.

An indicator of further trouble comes from the unlikely source of the annual reports of one of the world’s biggest hotel groups, InterContinental Hotels Group. Despite rising revenue, there has been a marked decline in gross profits as the hotelier struggles to compete with Airbnb and others. This is certainly a nasty omen for the hotel segment of Landsec’s stable of assets.

To sum up

Current trends do not herald a reverse of fortunes any time soon for Landsec’s share price. Thus, I advocate wariness to investors considering Landsec for its attractive dividend of 5.8% – there are plenty of alternatives for a safer dividend out there.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

Bryan Williams has no position in any of the shares mentioned. The Motley Fool UK has recommended boohoo group, InterContinental Hotels Group, Landsec, and Ted Baker. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. 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.

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