Investor interest in so-called reopening stocks has sparked in recent weeks following government plans to jumpstart the UK economy. British Land (LSE: BLND), for example, has attracted plenty of attention. As a result, its share price has rocketed 32% during the past four months.
However, there are several important issues UK share investors like me need to consider before buying this particular FTSE 100 recovery stock.
Problems for this reopening stock
Shopping centre operators like British Land are, in my opinion, more risky reopening stocks than many other retail-focussed companies. This is because their properties tend to have a high proportion of non-essential retailers which are more susceptible to economic downturns.
This explains why Local Data Company figures show shopping centres lost a whopping 6,984 stores in 2020. This accounted for 62% of all UK store closures last year. A prolonged period of weak consumer spending, combined with the end of furlough support schemes later this year, could prompt another fresh wave of bankruptcies among British Land’s tenants.
There’s a possibility demand for British Land’s office space will also fall following the rise of flexible working during the pandemic. Building society Nationwide is the latest in a string of major British companies to announce plans to ditch its offices as remote working practices remain fashionable.
Retail reductions
Of course my view on British Land as a sound reopening stock is just one. City analysts think the FTSE 100 firm can look forward to sustained earnings growth following the 33% earnings drop predicted for the outgoing fiscal year (to March). Rises of 21% and 7% are anticipated for financial 2022 and 2023 respectively.
What’s more, British Land is reducing its exposure to the retail sector to bolster medium-to-long-term growth. It’s a segment that currently generates just over 30% of total earnings. And it seems a good idea due to the severe structural threats like e-tail and the growing importance of sustainability in shoppers’ minds. However, I’m mindful that this reopening stock won’t tear up its working model. It plans to reduce its exposure only fractionally, to 25%.
In conclusion
In other good news, British Land has some handy financial wriggle room before it needs to take action concerning its debt covenants. This could give it a chance to develop its property portfolio for future growth if trading conditions remain stable.
Remember though, that British Land does have a lot of debt on its balance sheet (adjusted net debt stood at £3.7bn as of September). This could be a big problem if Covid-19 lockdowns return.
All things considered, I won’t be buying British Land shares. I think that recent good news on the Covid-19 is baked into the FTSE 100 share’s recent share price rise. And its meaty earnings multiple of 22 times could prompt a painful price reversal if pandemic-related news flow worsens. I’d rather buy other reopening stocks for my Stocks and Shares ISA today.
