Barclays cuts Hammerson stock rating to underweight, target to £2.45

On Tuesday, Barclays (LON:BARC) analysts downgraded Hammerson Plc (LON:HMSO), a British property development and investment company, from an Equalweight to an Underweight rating. The firm also lowered its price target on the company’s stock from £2.95 to £2.45. The downgrade was largely attributed to concerns over the company’s cash flow yield and limited capacity to invest in growth.

Barclays highlighted that Hammerson’s strategy to address its high cost ratio and funding for growth investment appears constrained. With limited room for the company to maneuver, analysts at Barclays are now focusing on Hammerson’s comparatively lower income return relative to its retail peers. This shift in perspective has led to the decision to downgrade the stock rating.

The analyst noted that while Hammerson’s headline net-debt-to-EBITDA ratio for the fiscal year 2024 was reported at 5.8 times, this figure might be overly optimistic. The calculation includes income from potential disposals throughout the year and reduces net debt by the same disposals. In contrast, Barclays’ own net-debt-to-EBITDA ratio for Hammerson stands at 7.1 times for the same period.

Furthermore, taking into account Hammerson’s announced capital expenditure plans and share buy-back initiatives, analysts believe that the company’s debt levels are beginning to appear stretched. This situation, they argue, leaves little room for acquisitions. Although Barclays has factored in £400 million worth of acquisitions of joint venture stakes at approximately 8% yields, which could add income and reduce the cost ratio, these are debt-funded and could drive leverage metrics to an unattractive level, with net-debt-to-EBIT reaching 9.3 times by the fiscal year 2029 estimate.

The report from Barclays suggests that the financial maneuvers Hammerson could potentially engage in to improve its position may not be sufficient to offset the impact of the debt these activities would incur. The firm’s analysis projects a cost ratio that would decrease from 39.9% in fiscal year 2024 to 34% by fiscal year 2029 estimate, yet the benefits of this reduction seem to be outweighed by the concerns over increasing leverage.

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