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Intu Properties upgraded by Deutsche Bank but is still no better than a 'hold'

Published: 10:03 05 Oct 2018 BST

Businessman fighting off a T. Rex
A successful bidder would have to take on Intu's enormous debt pile

Deutsche Bank has responded to the possibility of a bid for Intu Properties PLC (LON:INTU) by upgrading the shopping centres owner.

A consortium consisting of Intu's largest shareholder The Peel Group, together with Canadian asset manager Brookfield Property Group and Saudi Aradia's The Olayan Group have confirmed that they are "in the preliminary stages of" a possible cash offer for Intu.

READ: Intu Properties back in play as deputy chairman John Whittaker mulls bid

No price has yet been disclosed but the shares lurched 44.35p higher in morning trading to 192.9p, which is well above Deutsche Bank’s target of 140p.

Even so, the broker only moved to ‘hold’ from ‘sell’.

The consortium currently owns 29.9% of Intu, with The Peel Group’s stake at about 26%, so should it go ahead and make an offer – it has until 5.00pm on November 1 to do so – it would have a good platform from which to achieve a takeover.

Numis Securities also advises holding the shares; its target price is 173p.

It said it was not a surprise that the consortium is running the rules over Intu.

“While a bid would not be without complications – its legacy debt structure would be expensive to reprofile (1H18: £661m M2M [mark-to-market]), its 1H18 equiv yield was a tight 5.2%, it is over-leveraged (49% LTV [loan-to-value]) at peak valuations – INTU faces a highly challenged outlook over the next few years as capital deflation bites and it has limited capacity to finance the extensive defensive capex that is needed, heightening the risk of further loss of relevance in the fast-evolving world of physical retail,” Numis said.

“With no details on pricing levels, it is difficult to be categorical either way but for context, assuming a bid at 20-30% above the share price, implies a range of 180-195p, the top end of which is a 45% discount to 1H18 NAV [net asset value],” the broker said.

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

“Whether this would be sufficient to entice the c.70% of INTU’s register not owned by Peel/Olayan is hard to judge, but key to success will be getting Coronation, the Gordon Family and BlackRock on side given their combined c.37% interest,” it observed.

Numis reckons Peel is probably acting as king-maker, with Brookfield and Olayan as funding partners.

“Other than taking a counter-cyclical approach towards UK malls at what could prove to be the point of maximum pessimism, there are some clear and easy wins that Brookfield could achieve. Firstly, there is substantial low hanging fruit in INTU’s portfolio and second, there is significant potential upside from refinancing INTU’s expensive and inefficient debt structure; however, neither will be cheap to extract,” Numis predicted.

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