The Investment Column: Hammerson stands out amid the property gloom

Millennium & Copthorne; Fiberweb
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The Independent Online

Our view: Cautious hold

Share price: 965p (-24p)

A number of readers might think it is a waste of time writing about property companies. Surely the sector is toxic and the advice on all must be a solid sell.

Yes and no. The headlines have concentrated largely on the housebuilders whose shares have been doing kamikaze impressions for the past few months, but there are some companies that warrant furtherexamination.

Hammerson, the Reit that specialises in retail property, is one such group. While it is true that yesterday's announcement of first-half results was hardly invigorating, with net asset value slumping by 9.9 per cent, there are reasons to believe that a speculative punt now might be worthwhile.

The shares were down 2.4 per cent on yesterday's figures, but the last month has seen an almost 15 per cent recovery, more than double the gains made by its rival Liberty International, which announced interim numbers two days ago.

Cazenove compared the statement favourably, arguing that "in contrast to Liberty ... Hammerson stated that it was continuing to experience good demand from retailers, although it notes that tenants' incentives have risen". Those at KBC did cut their recommendation to "hold" from "add", saying that they were uncertain about the continuing deterioration of the property market, but they did maintain Hammerson's full-year net asset value prediction of 1175p.

While the group's rental income did appreciate by 4.4 per cent in the last six months, the group's chief executive, John Richards, says even he is not expecting any improvements in the wider property sector for the next six months and any buyers now would have to be long-term players. At some point in the not-too-distant future, the Reits will reach their nadir, but that is not now, and investors should hold fire. Cautious hold.

Millennium & Copthorne

Our view: Hold

Share price: 347p (-7p)

To the casual observer, there is little to recommend about the hotel market. For a sector that depends on travel (airlines are suffering), business customers (companies are reining in costs as much as they can) and holidaying families (camping trips are booming), things might not be looking all that good.

However, this is clearly not the case if Millennium & Copthorne's results are anything to go by. The group reported a rise of 9.2 per cent in first-half pre-tax profits yesterday, with revenue per average room (Revpar), the industry standard measurement, increasing by 8.3 per cent.

The chief executive, Richard Hartman, reckons that the company is benefiting from top-end hotel guests downgrading from the very high end market. What banker can seriously expect to be put up in the Ritz now, he asks? There is also the jewel in the group's crown, its Asian arm, but while Asia is certainly doing well, with Singaporean Revpar up 33.3 per cent (by comparison Revpar in London increased by 4.4 per cent, and that was more impressive than the rest of the UK), it is also the Asian business that caused a bit of concern.

Watchers at Citigroup pointed out that while the slowdown in the UK and US was expected, slowing growth in Asia was a nasty surprise. Mr Hartman himself says that Singaporean Revpar growth had been 45 per cent in April, but had fallen to 15 per cent by July.

The Citigroup experts do say, however, that the group's valuation is pretty solid. "[M&C]'s post-tax net asset value stands at 600p. However, we believe that the market will be reluctant to give full credit to [M&C]'s NAV in the current environment. Our target price implies a 35 per cent discount to NAV, which seems reasonable relative to [M&C]'s history and relative to UK property stocks." Hold.


Our view: Buy

Share price: 43.5p (+9p)

If you had put your life savings into Fiberweb, the specialist textile maker, two days ago you would be a lot better off now. However, the chances that anyone actually did that are remote. The stock has had a torrid year, falling, before yesterday, by nearly 73 per cent after a volley of bad news, including a profits warning last September and two failed takeover approaches.

All that is why yesterday was so much better for the group, which announced a pre-tax profit of £1.8m in the first half of the year, compared with a loss of £36.1m in the same period last year. In reaction, the shares were up 26 per cent at the close.

The chief executive, Daniel Dayan, says that the group has worked hard on its restructuring programme since demerging with BBA in 2006, the debt level is down a third to £119m, and with 60 per cent of the business in hygiene products, such as nappies and feminine goods, the company is a defensive punt.

The numbers came as a pleasant surprise to most analysts and for investors that did not move before yesterday's numbers, there is still time, say those at Royal Bank of Scotland. "With the PE at 9.2 times and dividend yield 12 per cent, we see scope to turn more positive on Fiberweb. We move to 'add' from 'hold'," they say. So do we.