Justin is an active trader with more than 20-years of industry experience. He has worked at big banks and hedge funds including Citigroup, D. E. Shaw and Millennium Capital Management.
If you want an example of a stock that has been obliterated by COVID-19, then UK-listed commercial property firm Hammerson Plc is a good place to start. The perfect storm of lockdown and potentially long-term changes to work and lifestyle habits took more than 86% off the valuation of the Hammerson share price between January and October 2020.
The one-way negativity about the share price in 2020 has, since the start of 2021, been under review, with investors now reconsidering the question, Hammerson, buy or sell? The stock is up about 50% from the start of the year, meaning traders following short-term speculative strategies and long-term buy-and-hold investors are both visiting the market in an effort to make a return. This review will look at the prospects for both kinds of investors and come up with a Hammerson stock forecast for 2025 and beyond.
Hammerson’s core business is developing and investing in commercial property. The firm has 20 flagship sites spread across 17 cities. They range from mixed-use ‘urban quarters’ such as Bishopsgate Goods Yard in Shoreditch, London, to La Vallée Village outlet shopping destination located adjacent to Disneyland Paris.
The firm is listed on the London Stock Exchange under ticker HMSO and since 2017, has been incorporated as a REIT (Real Estate Investment Trust). Pre-COVID, Hammerson was included in the portfolios of institutional and retail investors with the intention of generating consistent, if unspectacular, returns. Unfortunately, the events of 2021 were spectacular indeed but not in a good way. What was thought of as a bit of a ‘plodder’ became a ‘stock market dog’, and since January 2020, the firm has lost more than 87% of its value.
The collection of city-centre offices, shopping malls and leisure facilities the firm owns are occupied by super-stressed tenants. Income streams are under threat and the firm issued an Emergency Rights Issue in 2020 to raise £552m in an effort to keep the lights on. A glimmer of hope for bottom fishers is that 94.9% of existing shareholders took part in the rights issue. For some, Hammerson is a long-term play and buying in at current distressed levels is a great buying opportunity.
The Hammerson stock forecast is based on two propositions. The first is that it is a well-run firm with a decent track record, which is facing extreme external risk factors. But if it can survive the immediate crisis, it should provide a steady but reliable return in future. The second is that it could quite easily go bust at any time.
Read between the lines of Hammerson’s own mission statement and it’s clear to see the firm is facing a potentially existential crisis.
“Our near-term focus, has been and will continue to be, on managing the business through the pandemic, strengthening the balance sheet, securing further disposals and rigorous portfolio management.”
If there are any signs that either one of those scenarios appears more likely to play out, it could have a dramatic impact on the share price. In the first six months of 2021, at times, the share price doubled in the space of four weeks. On 29th May it lost just under one-third of its value in a single trading session. Remember, Hammerson used to be the kind of investment you can buy and forget about until you retired.
Fundamental analysis can help answer the question, is Hammerson a good stock to buy? But with short-term price volatility at current levels, it is technical analysis that can help exploit short-term pricing anomalies.
The reliability of technical indicators can vary due to market condition. What works now might not work tomorrow, but throughout 2021, the daily RSI has proved a reliable indicator of the next price move. The shift to being ‘over sold’ on 25th January was followed by a price rise on 16th March. The strong rally, in turn, caused the daily RSI to move into ‘over bought’ territory and on hitting an RSI reading of 87, the Hammerson share price then began to lose ground, falling back on 23rd March. This pattern has continued, and the next time daily RSI hit overbought territory on 14th June, the share price fell away soon after.
This might appear to be a case of looking too much in the rear-view mirror, except that the RSI has, for only the second time in six months, just hit 30. The most recent time it was this oversold, the Hammerson share price started a multi-month rally. While nothing can be guaranteed, a technical indicator as strong as that is hard to ignore.
A cross-reference to the weekly moving averages unearths another indicator, which points to the path of least resistance being upwards. The intersection of the 50 weekly SMA but the 20 SMA at the end of June offers a confirmatory signal to match the primary signal given by the RSI.
There is one news event on the horizon – 27th July sees the company provide a market update on its earnings forecasts. There is a question of whether there is bad news that hasn’t been priced in yet, but as the AGM was held on 4th May, that at least is out of the way in terms of avoiding nasty surprises. The company’s full year earnings for 2021 aren’t due to be announced until 28th February 2022.
The Hammerson Stock forecast for 2022 incorporates what the company describes as “new operational difficulties” relating to COVID and “the impact of the structural shifts in retail and constraining investment markets” (sources: Hammerson). In short, there’s a lot going on and a lot of variables to consider.
The first is the role of dividend yield. Part of the historical attraction of Hammerson has been its ability to generate a consistent return to investors. It wasn’t ever going to match the potential growth prospects of a tech start-up, but it was a well-run business generating the kinds of steady returns much sought after by those running high-yield investment strategies.
Any signs that the firm can begin to turn a profit will see an influx of pension fund cash and that will drive the share price back towards pre-COVID levels. The 4% dividend yield seen in 2016 and 2017 might not be so appealing for more speculative investors, but for big funds running billions of dollars, it’s a big buy signal. It’s also worth remembering that the lower the price you get into a long position then the higher the percentage yield over time.
The trading update due on 27th July will offer a glimpse of whether a return to normality might be on the horizon. The investors section of the Hammerson site currently has some data on occupancy rates and other key metrics, but what is needed is a snapshot of how the firm has fared in the earlier part of 2021.
From that baseline, it will be possible to incorporate the predicted pace of recovery from the pandemic. If the global line of defence continues to be successful, vaccination programs rather than social health policies such as lockdowns, then the Hammerson share price has more than a fighting chance of recovery.
The below figures are taken over a five-year period up to March 2020. As these figures exclude the impact of the pandemic, they need to be treated with caution but do offer an idea of what the ideal recovery would look like:
Price targets are hard to call and there’s still the possibility Hammerson could go bust, but in the positive scenarios, the following technical resistance levels come into play.
The 50-month moving averages currently sits close to the 50% Fib, making the region of £2.85–£2.96 an area of stiff resistance. By the time any possible recovery happens, the 50 SMA could be closer to the 38.2% Fib. Before all of those come into play, the first real test will be the 20-month moving average – currently at $0.74 – and there could be some resistance from bears if price reaches the psychologically important £1.00 price level.
How do you make a Hammerson stock forecast for 2025? With great difficulty. The sector the firm operates in was one of the most acutely affected by COVID and lockdowns and the enforced changes on everyday practises has let a genie out of the bottle.
There’s no guarantee that the world’s population will go back to the working, shopping and entertainment patterns of pre-2020 and large parts of the property portfolio Hammerson operates is ill equipped to adapt to change of use. The risk of further surges in COVID infection rates is also casting a long shadow over the firm, so what are the reasons to be optimistic about the Hammerson share price forecast?
As outlined, the firm is exposed to a variety of external risk factors, but it is taking an open-minded approach to how it can best return value to its shareholders.
The firm has introduced changes to personnel and its business model in an effort to bring about change. As the firm states:
“Following a rights issue and changes in senior leadership, a review of our longer-term strategy is underway to unlock value creation by transforming our portfolio.”
New approaches might include following the lead of John Lewis, which has announced it will be converting some of its shops to residential and leisure use. Hammerson has a good track record of developing sustainable ‘city quarters’ such as Bishopsgate Goodsyard, Dublin Central and the Martineau Galleries. All of these reflect Hammerson having already started responding to modern consumer patterns and user appetite to visit mixed use locations.
The days of the traditional high street might be numbered, but Hammerson should not be lumped in with the struggling retail sectors of run-down small towns in the middle of nowhere. The firm’s assets include mixed use and premium outlets, including Bicester Village, Oxfordshire; Fidenza Village, Emilia Romagna; and Las Rozas Village in Madrid. Put another way, Hammerson was already moving away from flagship city centre developments even before COVID struck. Luxury outlets such as these already boast 1,049 tenants and a gross lettable area of 191k metres squared.
This means the firm has a fighting chance of making it through to the other side and the demise of less forward-thinking rivals will form an opportunity for Hammerson to build market share. Factor in that big investment funds are bound by their investment mandates to allocate some part of their assets under management to commercial property and there are reasons to believe the Hammerson share price will push on.
Big pension funds need to hold some kind of commercial property stocks, and Hammerson may just be the best of a bad bunch. If the recovery really kicks in, the whole sector will benefit, but the better-positioned firms such as Hammerson would benefit more than most.
These long-term plans need to be built on secure short-term foundations and the most recent company reports suggest the firm may be stabilising its revenue streams. ‘Freedom Day’ of 19th July saw the UK unshackle itself from lockdown restrictions. Even before that, things were looking up and the London Stock Exchange’s trading update of 15th July entitled ‘Rent Collection Rates Continue to Improve’ reported:
“Footfall trends in all territories remain encouraging, with seven-day averages currently sitting at around 70-80% of 2019 levels.”
Source: LSE / Hammerson
“Initial Q3 rent collection at 47% is ahead of Q1 and Q2 at the same point in time, and FY21 YTD collection now stands at 62%. We expect all rent collections to continue to improve as remaining Covid-related restrictions are lifted. We do not anticipate granting future concessions and all avenues to collect rents due are being pursued.”
Source: LSE / Hammerson
The short-term prospects for Hammerson are relatively hard to call. The binary situation the firm finds itself in means it’s trading at Penny Stock levels with the potential to go bust, but has a long-term track record of being a darling of institutional investors who prized its stability and income yield. The Hammerson share price reflects that dilemma but there are many who look to the medium and long-term prospects of the firm and consider now an ideal time to buy.
It could well be possible that entry points appear at levels lower than the current price, but glass-half-full investors with a long-term plan can claim this is the mother of all dips.
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