There’s an abundance of great FTSE 100 shares to buy for 2020 but I’m afraid that British Land Company (LSE: BLND) isn’t one I’ll be putting in my Stocks and Shares ISA any time soon. In fact I’d encourage anyone holdings shares in the shopping centre operator to sell up before half-year trading results are released on 13 November.
I find it quite amazing that buyers have barged back into British Land in recent weeks. It’s up 14% over the past three weeks and trading just off recent 14-month peaks around 640p per share. Investors piled back in on the hopes that a no-deal Brexit would be averted on 31 October, and while this remains true, there’s still a possibility of a disorderly withdrawal from the European Union in the next few months.
Besides, it’s not as if the Footsie firm was coming off a low base. British Land was still trading on a forward price-to-earnings ratio above the blue-chip average of 14.5 times and this recent ascent means that it now trades at 18.5 times forward earnings, a reading I reckon fails to reflect its enormous risk profile.
Murder on the shop floor
Unless you’ve been living in a cave the past couple of years you’ll know the UK retail sector is in extreme difficulties as Brexit uncertainty forces consumers to tighten their purse strings. Latest data from the Confederation of British Industry showed that sales fell again in October, the sixth consecutive monthly drop. This marks the longest run of declines since the 2008–09 financial crisis.
Needless to say, this week’s extension to prolong the Brexit process should continue to plague Britain’s retailers, a growing number of whom are going out of business and screaming at their landlords (like British Land) to cut them a break and reduce rents.
However, these near-term political pressures aren’t the only reason to be worried for the future of many of the UK’s shopping centres, as e-commerce goes from strength to strength. Recent British Retail Consortium figures showed footfall at these plazas dropped 3.2% in the last ten years as technical innovations (like mobile shopping) have taken off and retailers have souped-up their online services.
City analysts currently expect British Land to record a 4% drop in yearly profits in the fiscal period to March 2020, a figure I see in jeopardy of being downgraded in the months ahead given all of the above. And what’s more, hopes of a 5% bottom-line bounceback at the Footsie firm in the following financial year appear to be built on sandy foundations as well.
I’m paying little attention to City predictions of further annual dividend growth in this period and market-beating yields of 5.1% for this year and 5.2% for fiscal 2021. British Land put out a quite disastrous set of numbers last time it updated the market in May and I think it more than likely that the 13 November set will be just as bad, with that relatively high earnings multiple and those recent share price gains exacerbating the chances of a severe share price correction.
There’s an abundance of other FTSE 100 shares I’d rather buy than this one.
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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended British Land Co. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2019