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Hammerson likely to be axed from FTSE 100

Hammerson likely to be axed from FTSE 100

The latest rebalancing of the companies that comprise the FTSE 100 is likely to see property company Hammerson expelled from the blue-chip index and replaced by Royal Mail.

The companies in the FTSE 100 are reviewed quarterly, and are set by examining the closing share prices on the Tuesday before the last Friday of the review month.

A stock that is placed 90th or above will likely be promoted, while the stock that is 110th will be demoted.

Royal Mail was removed from the index six months ago as its share price dipped to £3.70 but since then the shares have bounced back up to £5.60.

Russ Mould, investment director at AJ Bell, said the current dividend yield of 4.3 per cent is attractive to income investors and has boosted the share price performance.

In contrast, the share price of Hammerson has fallen from more than £6 to £4.60 in the past six months.

Hammerson owns shopping centres in the UK, Ireland, and France, including the Brent Cross shopping centre in London.

Mr Mould said: "In the mind of {those bearish on the shares}, this leaves the company exposed on two fronts.

"First, trading conditions in the UK for bricks-and-mortar retailers remains tough, as wage growth remains sluggish, the UK savings ratio is low and doubts persist about how the British economy will fare after Brexit.

"Second, competition from online rivals remains as fierce as ever and many retailers are finding themselves with too much floor space, prompting fears over weak rent reviews and rising vacancies.

"In addition, investors are clearly sceptical of Hammerson’s planned acquisition of FTSE 250 shopping centre owner Intu, which the company plans to fund with an all-share deal.

"The shares have continued to fall even though they look cheap. Hammerson offers a prospective dividend yield of some 5.5 per cent, based on a dividend forecast of 25.5p, and its last published net asset value per share figure was £7.71.

"The stock therefore trades at a very high 40 per cent discount to net asset value, although the share price seems to believe that the asset values will start to fall at some stage."

Mark Barnett, who runs the £9.7bn Invesco Perpetual High Income fund, has for some time been keen on the investment case for UK property companies.

He said such businesses trade at discounts to net asset value that imply if the assets were sold it would be at discount to the value those assets are given in the accounts of the property companies. Ye

t when the assets are sold they tend to fetch a greater price than they value at which they are held in the accounts, implying an investment opportunity.

 david.thorpe@ft.com