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Capital Shopping Is Least-Loved in U.K. Benchmark

Capital Shopping Centres Group Plc owns nine of the biggest malls in Britain. That’s not enough for any analyst to recommend purchasing the stock.

The U.K.’s largest shopping-center owner, which changed its name from Liberty International Plc on May 7, is the only company in the benchmark FTSE 100 Index without a single “buy” recommendation. Analysts point to the struggles facing the U.K. retail industry and say the stock is overpriced.

“Do you want to be in shopping centers at this point of the cycle? Probably not,” said Robert Duncan, a Nomura International Plc analyst in London with a “reduce” rating on the stock. “Consumer spending will be under pressure for some time.”

Potential rent increases rather than price appreciation will drive property returns during the next three to five years, Duncan said. Spending cuts by Prime Minister David Cameron’s government may hurt consumer spending, making it harder for landlords to raise rents, he said.

Retail property values have surged 17 percent since the worst real estate recession on record ended in July, researcher Investment Property Databank Ltd. said last week. That exceeds gains of 12 percent for offices and 10 percent for warehouses.

Retail sales increased 0.3 percent in April from the previous month, the third straight gain, the Office for National Statistics said May 20. Even so, consumer confidence fell to a three-month low as households grew pessimistic about the outlook for their finances. That’s after unemployment rose to a 16-year high in the first quarter.

More Expensive

Capital Shopping, based in London, is more expensive than the other four real estate companies in the benchmark, based on measures including price-earnings ratios, data compiled by Bloomberg show.

The stock traded at 18.9 times 2010 estimated earnings at the closing of trading in London today. British Land Co., Hammerson Plc and Segro Plc were all at multiples of about 16 and Land Securities Group Plc traded at 17.5 times. The FTSE 100 Index average was 10.2.

Capital Shopping is the worst performer in the 16-member FTSE All-Share Real Estate Investment Trust Index this year, slumping almost 21 percent. The stock closed up 3.8 pence, or 1.2 percent, at 315.3 pence in London trading today.

“We see value at below 320 pence, but we see more value elsewhere,” JPMorgan Chase & Co. analyst Harm Meijer said in a note to investors on May 10. Meijer rates Capital Shopping “underweight” and prefers Hammerson and Capital & Regional Plc.

Biggest Mall

Capital Shopping changed its name when it spun off London- focused unit Capital & Counties Properties Plc as a separate publicly traded company. Its Metrocentre, which is in Gateshead near the English city of Newcastle, is the largest U.K. mall with 330 shops.

The company said today that it agreed to sell its U.S. unit to Equity One Inc., a U.S. real estate investment trust, in a transaction valuing the business at $600 million.

“Undoubtedly, large shopping centers are a fairly unloved sector at the moment,” Chief Executive Officer David Fischel said in an e-mail on May 21, responding to a request for comment on the analysts’ views.

Of the 14 analysts who have issued notes to investors on Capital Shopping Centres since the spinoff, eight have a “reduce,” “underweight,” “underperform” or “sell” rating. Six rate it “hold” or “neutral.” None of the 21 analysts covering Liberty had “buy” or “overweight” ratings.

Out of Favor

After Capital Shopping, the most out-of-favor stocks in the FTSE 100 are auto catalyst maker Johnson Matthey Plc, which has one buy recommendation, and Standard Life Plc, Scotland’s largest insurer, which has three. Capital & Counties has received four buy ratings, five holds and two sells since May 10.

Capital Shopping is relatively expensive, said Credit Suisse AG analyst Steve Bramley-Jackson in London, who has a neutral recommendation. “It is a valuation call as much as anything,” he said.

The company is trading at a narrower discount to its last reported net asset value -- the ratio most used by analysts to measure real estate company performance -- than Land Securities, British Land, Hammerson and Segro, Meijer said. Land Securities, Hammerson and British Land all own shopping malls.

Capital Shopping has fallen 9.5 percent since the spinoff became effective on May 7, while the REIT Index has risen 1 percent. The FTSE 100 has declined 1.7 percent in the period.

Another concern about Capital Shopping is that its malls are older than those owned by rivals and will require more maintenance, Nomura’s Duncan said.

Fischel plans to spend 500 million pounds ($718 million) to extend its Lakeside, Braehead and Victoria Centre malls.

“There will be very few new centers for a long time,” he said in an interview last month. “You won’t start a big shopping center without big retailers willing to sign up.”

To contact the reporter on this story: Peter Woodifield in Edinburgh at pwoodifield@bloomberg.net.

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