Bottom Line: Hammerson's rights may be cheap but not cheerful

HAMMERSON must envy Brixton Estates. Brixton's rights issue, at an 8.8 per cent discount to its historic net asset value, was widely criticised for being too cheap, so its shares were marked up 11p.

Based on the 285p rights price for the ordinary shares, Hammerson's was at a 35 per cent discount to the last NAV - and even larger on the 255p rights price for the 'A' shares. But its ordinary shares dropped 7p to 373p and the 'A's only gained 4p to 344p in response to the group's decision to give them equal voting rights.

Gearing before and after the rights issue will be identical for both companies, at 114 per cent and 69 per cent respectively. But that was after pounds 188m of property sales by Hammerson in 1992, while Brixton was able to keep its portfolio largely intact.

It can also expect an increase in asset value if the fledgling recovery is sustained, while the fact that 60 per cent of Hammerson's portfolio is in overseas markets, many of which are still afflicted by recession, means it is likely to see a further fall.

Hammerson even loses out on income. After a 41 per cent cut in the dividend last year, the 'A' rights shares yield just 4.9 per cent compared with 6.7 per cent for Brixton, based on a maintained dividend.

That all illustrates the market's belief that Brixton's management can be trusted to use the cash wisely. The fact that the market - or rather Standard Life - has backed Hammerson's rights issue shows it is prepared to trust the new management team; but Ron Spinney, chief executive, has still to prove he is worth backing.

He was making all the right, if obvious, noises yesterday. Nine executive directors makes the group look rather top-heavy and, while administration of an international portfolio is likely to be costlier than running one wholly in the UK, that should be balanced by the small number of properties in the portfolio - which, at 50, is less than a tenth of rivals such as MEPC. Suggestions that he could cut pounds 4m from the pounds 15m administration bill by the end of next year show there is scope for more balancing.

Property sales are undoubtedly in the pipeline, but the rights money will give him time to choose the ones he wants to sell instead of allowing buyers to do the selecting for him. The dilutive effects of the rights issue mean that asset value forecasts for 1993 have been cut from 420p to 365p, putting the 'A' shares on a 5.7 per cent discount.

That may look cheap given that others - such as Brixton and Land Securities - stand at a premium. But they not only offer higher yields, they also - unless Mr Spinney can perform miracles - offer better prospects for NAV growth. Investors would be better off with them than with Hammerson's rights.