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Intu shares sink to all-time lows as Morgan Stanley turns bearish on property stocks

Published: 15:07 30 Aug 2018 BST

intu shopping centre
It was better news for student accommodation group Unite, which was upgraded to ‘overweight’

UK shopping centres have started to drop in value, according to Morgan Stanley, which has downgraded its view on the sector to ‘in-line’ from ‘attractive’.

In a note to clients, the analysts claimed their research has shown a “sharp” reduction in the value of centres such as Bluewater in Kent, which was recently revalued down 11% by owner Land Securities Group PLC (LON:LAND).

READ: Intu plunges into the red after a £650mln write-down on its property portfolio

Backing up their point is the fact that property valuation yields have started expanding in the UK, indicating that the values themselves are coming down.

The analysts, led by Bart Gysens, state that Intu Properties PLC’s (LON:INTU) centres saw their yields move out by as much 33 basis points in the first half of the year.

Morgan Stanley also notes that Intu has underperformed its peers on an operational level, with negative like-for-like rental growth in five of the past eight years.

They add that the UK retail property market is “increasingly challenged and provides a major drag” as people opt to do more and more shopping online.

More M&A activity?

That said, there have been multiple offers for European property groups over the past six months – including one for Intu itself – and the analysts don’t rule out some more bids being put forward in the near future.

“While we do not base our analysis on takeover valuations, we do think that potential M&A activity in the space remains a potential key upward risk to our Intu valuation and therefore our Intu price target,” they added.

In the overall property sector, Gysens and co concluded there is “not as much absolute potential as before” and warned investors to be careful with “optically cheap” stocks, including those with an exposure to the retail industry.

Shares in Intu, which was downgraded to ‘underweight’ from ‘equal weight’, fell to an all-time low of 153.8p early on Thursday morning.

They recovered slightly as the day wore on and were down 3.8% in afternoon trading to 155.7p – just ahead of Morgan Stanley’s 150p price target.

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