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Who would invest in retail property right now? Apart from Mike Ashley of Sports Direct? Or a distressed asset fund? Or a distressed Mike Ashley? Apparently, there is another would-be buyer: European private equity group Orion Capital Managers, which is “exploring a deal” for Intu, owner of the Trafford shopping centre, among several others.
A report to that effect in the Sunday Times sent Intu shares up 20 per cent in early Monday trading, lifting its value to £546m. Some evidently saw a bid as a possibility, and had read of Orion’s success with distressed retail assets in Spain — buying into shopping centres and an office landlord’s debt after the financial crisis, then selling at a profit when the market recovered.
But its chances of doing the same with Intu look much more unlikely — as it would be servicing, not owning, its £1bn debt and the UK retail property market offers much less scope for recovery. Analysts at broker Berenberg catalogued the reasons for a further downturn last month: “recent retailer creditor voluntary agreements (CVAs) yet to fully annualise and further rental pressure evident”; “footfall to centres within low emission zones could fall materially”; “vacant land value . . . is likely to remain theoretical”; “non-functional investment markets preventing deleveraging”; “valuation discount deserved . . . given the negative total returns forecast”.
Intu itself offers less scope for recovery than rivals, given the extent of its over-leverage and its inability to pay off debt fast enough. Analysts at broker Stifel calculated the risks of a bank covenant breach this month: “Intu would need to sell £1bn of assets (at book value) to keep the loan to value ratio below 60 per cent, and to reduce it to below 50 per cent would require disposals totalling £2bn . . . given the almost total lack of liquidity in the retail property investment market, this seems fantastical to us”. An equity rights issue seemed equally fantastical, they also argued, as it would require “an enormous contribution from shareholders” who had already seen their holdings lose two-thirds of their value this year.
Does taking on such debt not seem fantastical to Orion? It quite possibly does — there was no statement on a bid from Orion on Monday. In fact, some commentators suggested the bid talk was more about Orion, as a 9 per cent Intu shareholder, hoping to book a place on any take-private deal led by 27 per cent shareholder Peel Holdings, owned by billionaire John Whittaker. Having previously built, run and even lived in the Trafford Centre — before selling it to Intu — Mr Whittaker perhaps is most likely to concur with JPMorgan’s assessment of the asset’s value: 148 per cent of Intu’s current market capitalisation, and still 102 per cent of it if there were another 15 per cent devaluation.
Debt refinancing may yet prevent a deal for Intu as a whole. But, on a sum of the parts basis, it is starting to look a bigger bargain than anything the Trafford Centre’s tenants can offer.
Eddie Stobart: KISS off
Stobart companies — whether Eddie the trucker or its kissing cousin Stobart Group, the airport business — struggle to KISS, writes Kate Burgess. They rarely “Keep It Simple, Stupid”. Last month, Eddie Stobart’s shares were suspended at 71p after boss Alex Laffey quit and the group delayed half-year accounts amid mathematical misgivings. Now Dbay Advisors, Manx owner of just over 10 per cent of ES, has expressed an interest in buying it. Lest we forget, Dbay is the investment adviser that has activist hedgie Colin Kingsnorth of Laxey Partners as a director and formed a joint venture with Stobart in 2014 to buy ES out from the group. Are you keeping up at the back?
Dbay then floated the truck business on London’s junior market in 2017 at 160p a share. All was fine until a newly hired FD began going over the numbers this spring. Now investors — including the bedevilled Neil Woodford, a long-term Stobart fan — are in limbo. The company has until February to lift the share suspension or its shares will be cancelled. And if Stobart can’t KISS, Lombard can: an offer from Dbay, if it comes up to scratch, would be a relief.
Pukka Primark
Opening new outlets as like-for-like sales fall and margins contract may sound worryingly familiar. But it’s not another casual dining chain following the business model of “pukka” chef Jamie Oliver. It’s Associated British Foods backing the business model of Primark chief Paul Marchant. And there are reasons to believe his fashions will go down better than the fettuccine.
Primark’s like-for-like UK sales fell 1 per cent in the past year but that is well ahead of the wider online and offline market, and improving. Operating margins will be below 11.6 per cent next year but on currency not costs, and still higher than the 10 per cent of two years ago. And space is not being added in mature markets, but in growth territories. Even ABF’s sugar division is set to recover, Brexit or not. So the recipe looks good for a while yet.
matthew.vincent@ft.com
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