I’ve been looking at shares priced under £1 that I can add to my Stocks & Shares ISA short list. And as long as I keep away from rock bottom prices and avoid wide market spreads, I should be able to minimise the risks that often come with penny shares.
FTSE 250 commercial property developer Hammerson (LSE: HMSO) looks good to me. In 2020, Hammerson recorded a statutory loss of £1.7bn. That’s mainly down to property revaluation, though. Net rental income was down 41% to £158m, but it could have been a lot worse. And the company put its adjusted earnings at £36.5m, with adjusted earnings per share at 1.6p.
There has been a rights issue, and the company has disposed of some assets to free up cash. That’s helped get the liquidity situation looking healthy enough to me. Net debt actually dropped in 2020, to £2,234m. And the company reckons it had liquidity of £1,748m, including £503m in cash. As the economy strengthens, Hammerson must be well positioned to benefit, mustn’t it? Well, there’s still plenty or risk attached to commercial property. Business isn’t exactly booming yet. And any Covid, or economic, downturn could cause pain. But I have Hammerson on my penny shares short list.
Set for recovery?
Next up is outsourcing specialist Capita Group (LSE: CPI), which I have down as a recovery candidate. Capita has been through a terrible patch, plunging to big losses. The share price has followed suit, crashing more than 80% over the past five years. Even the Covid-19 crash looks relatively benign when seen against Capita’s woes. So why would I consider buying a penny share like this?
It’s all about the company’s 2020 results, which included a return to positive free cash flow. The company put that down to “higher cash conversion and improved and sustainable cash collection“. Net debt also came in better than expected, down 20%. And the firm’s gearing was “well within covenants“.
All this looks positive. But the key development for me is that Capita said it expects to achieve sustainable cash generation in 2022. Now, I’m still seeing a fair bit of risk here. And I reckon Capita might even dip further into penny share territory before turning round. But I’m optimistic.
AIM penny shares
Turning to AIM, penny shares there go down as low as 0.05p. But moving up the list of prices a bit, I do like the look of HSS Hire (LSE: HSS). Several of my Motley Fool colleagues have been positive about HSS in recent months, including Rupert Hargreaves who took a look in May.
As Rupert pointed out, HSS, along with the sector in which it operates, suffered during the crash. But it’s coming back, with an 80% share price rise so far in 2021. It was higher in April and has fallen back since then, mind. Still, when reporting 2020 results in April, HSS was upbeat about this year. The company told us “We have had an encouraging start to 2021, with EBITDA in the first quarter ahead of 2019 and 2020 levels“.
There’s certainly risk here, as there is with the three of these. A further Covid wave, or even an economy weaker than expected, could set them back. But on balance, I’m tempted to buy these penny shares.
Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.