Can Hammerson shares recover as inflation hits UK retailers?

The king of UK shopping centres and owner of Brent Cross had suffered during the coronavirus pandemic amid the closing of brick-and-mortar retail stores. While Hammerson recorded encouraging half-year results in 2022 that showed its business was recovering, the question is whether it can continue to bounce back as the cost of living crisis intensifies. 

Since being forced to selloff millions of pounds worth of assets during the coronavirus pandemic, major UK shopping centre landlord Hammerson [HMSO.L] has continued to face headwinds.  

As of 15 August, its share price has plummeted by a massive 90% over the past five years, with around a quarter of this drop within the past 12 months alone. Year-to-date the stock is down 18.4%, compared with the FTSE 250’s fall of 13.2% over the same period. 

While Hammerson’s large retail property portfolio — in the UK, it owns the Bullring in Birmingham and Bicester Village designer outlet centre in Oxfordshire — has suffered, the company had largely recouped a lot of the unpaid rent from the pandemic in the first six months of year. However, as inflation rises, the company is facing a cost of living crisis that could hurt both its UK portfolio as well as its centres in France and Ireland.  

Can Hammerson post another upbeat trading update?

Despite a difficult past few years and growing challenges as households tighten their spending to combat rising living costs, Hammerson announced promising results in its H1 trading update in July. The company scored its first profit in five years and recorded an increase in footfall back to 90% of pre-pandemic levels.

The company turned profits of £50m in the first six months of 2022, compared with a loss of £376m a year earlier. Revenue was £62m, down from £65.3m, and net assets came in at £2.8bn, up from £2.75bn in H1 2021. 

The company reported its adjusted earnings were up 154% to £51m, reflecting a 48% increase in like-for-like net rental income. It also trimmed its debt by 6% to £1.7bn.

On 28 July, the day of the results, Hammerson shares closed 8.2% higher than the previous day at 23.4p.

However, as the cost of living crisis escalates, one key question for Hammerson is whether consumers can afford to keep on shopping in the longer term. Colm Lauder, an analyst at brokers Goodbody, recently told The Times that the cost of living crisis was “the big unknown” for shopping centres. Fundamental shifts in shopping habits post-pandemic may also negatively affect Hammerson’s ongoing fight for survival.

The commercial property market may also suffer, as interest rates, and so borrowing costs, rise and with the macroeconomic outlook looking increasingly gloomy. The Royal Institution of Chartered Surveyors said in July that the consensus was the sector is entering a downturn.

Muted response from analysts

Hammerson recently received a significant forecast downgrade from analysts for 2022. According to Yahoo Finance, a consensus of 10 analysts forecast that Hammerson’s revenues will come in at £197m for full-year 2022, which would translate to a 33% decline in sales compared with 2021. Losses are forecast to increase by 2,288% to 22p per share. Previously, revenues of £238m and losses of 17p per share were predicted. 

In July, RBC cut its rating on Hammerson from an ‘underperform’ to ‘sector perform’ and reduced its price target from 32p to 17p. The bank believed that factors including “a relatively high level of variable revenues” and “complicated ownership structures for its properties” had increased uncertainty surrounding Hammerson’s future earnings.

In early August, Hammerson had its target price raised by Barclays analysts from 22p to 26p, which would be a potential 2.3% downside from its closing price on 15 August of 26.62p. However, the bank maintained its ‘underweight’ rating.

According to a consensus of seven analysts at MarketBeat, the opinion is to ‘sell’ Hammerson stock, and a consensus 12-month target of 24.33p would be an 8.6% fall from its close on 15 August.