Intu Has Fallen 64% and No Analyst Is Willing to Call a Bottom

LONDON (Capital Marketds in Africa) – How toxic is the U.K. retail sector? Consider shopping-center owner Intu Properties Plc.

Intu is among the worst-performing stocks in the U.K. in 2019, having lost almost two thirds of its value, and none of the 19 analysts who cover the company recommends buying the shares. Seven analysts have hold ratings on London-based Intu, while 12 recommend selling.

That’s unusual, even for a company with as many problems as Intu, given that brokers as a lot tend to be optimistic, quick to spot a buying opportunity in every decline. Every other stock among the 10 worst performers this year in the FTSE All-Share Index has at least one buy recommendation.

Many British retailers are struggling, hurt by online competition and the depressing effect on consumer sentiment from the U.K.’s looming, messy departure from the European Union. Intu as a result has been hit by writedowns on the value of its properties and falling rent. What sets it apart from other retail property owners is that it’s carrying too much debt.

“The balance sheet is a mess,” said Berenberg Bank analyst Kieran Leevia email, and the company doesn’t have any good options: Selling assets to cut debt would hit earnings and in any case it would be difficult to offload properties in the weak market for U.K. malls. He said he struggles to envisage Berenberg becoming a long-term buyer of the shares any time soon.

There’s precious little sign of other analysts warming to Intu either. Matthew Saperia of Peel Hunt LLP said the obvious move to curry favor would be to sell assets or new shares to bring down leverage. An equity issue, however, “would not be good news for existing shareholders” given where the stock is sitting right now, he said via email.

Two takeover offers for the group have failed in the past 18 months, the first from U.K. rival Hammerson Plc, the second from a venture led by Brookfield Property Group. The reception to Intu’s first-half results, released on July 31, was frosty, with Liberum Capital Ltd. calling the earnings “awful.”

Intu declined to comment on analysts’ views on the company.

Out of Favor
Other retail property stocks are also distinctly unpopular in the U.K. A glance at the performance of stocks in the FTSE 350 Real Estate Investment Trust index shows a clear pattern that the higher your exposure to retail property, the worse the shares have done in 2019.

The more retail exposure, the worst the share price performance for U.K. property stocks in 2019 so far.

Joining Intu at the bottom of the index is Hammerson, Intu’s closest peer in U.K. malls. NewRiver REIT Plc has also suffered, but less so thanks to its exposure to more attractive convenience stores and pubs. Also lower this year are British Land Co. and Land Securities Group Plc, mostly office owners but which also have some shopping assets on their books.

The best performers in the index are the likes of warehouse owner Segro Plc, self-storage center operator Safestore Holdings Plc and student accommodation developer Unite Group Plc, with not an ounce of direct retail exposure among them.

Declines in retail property mean Intu is in danger of breaching some debt covenants that are tied to the ratio of loan amounts to property values.

Asset sales and debt reduction would help but “most importantly stability in the retail property market” would ease Intu’s pain, Panmure Gordon & Co. analyst Miranda Cockburn said. That, however, is “outside of Intu’s control.”

Source: Bloomberg Business News