HSBC slashes target on Intu Properties, sees possible third suitor

Analysts at HSBC slashed their target price on stock of Intu Properties, pointing to the two failed takeovers of the shopping centre operator and forced asset sales to reduce its gearing as justification for saying that "a rationale for investing is hard to establish".

In a research note sent to clients, Stephen Bramley-Jackson, Thomas Martin and Stephanie Dossmann cut their target from 236p to 136p, although their recommendation was kept at 'hold', in part due to the possibility that another potential suitor might yet materialise.

Indeed, one of those offers had been pulled by the offeror's own shareholders, they explained, who had gotten 'cold feet' ahead of Brexit.

Together with its "high" balance sheet gearing and committed capital expenditures, that left Intu backed into a corner, forcing it to cut its dividend payout in order to free the working capital it needed.

"The need for asset sales into a market where there is little, to no liquidity for large shopping centre assets (i.e., INTU’s assets) and as such the only means to harness working capital is to ‘substantially reduce’ the dividend payout," they said.

"Our estimates assume there will be no H2 dividend, and this will prevail through FY19e."

Compounding matters further, Intu's debt financing had been too costly, they judged, its 'land grab' for shopping centres 'ill-timed' and the advantageous decision to enter the Spanish market might now need to be unwound to help it lower gearing.

"Frankly, there is little by way of an investment case that can be confidently proffered for INTU.

"[...] We retain a Hold rating as a compromise between reservations for the business as an ‘ongoing concern’, and the possibility of approach no. 3 at a higher price than the prevailing equity price."