The broker has downgraded its net asset value (NAV) forecasts by more than 14% and expected future asset disposals to weigh on capital values and income.
Liberum said if asset values fall a further 20% and income by 10% then what it calls “an equity cure” would be required.
“We model a 12% [net asset] value decline over two years, which is sufficiently close to this limit to warrant a continued elevated valuation risk premium. Levers exist which could significantly reduce this risk profile,” Liberum said.
Unfortunately, in Liberum's view, Intu has been slow to reduce its financial gearing and this is now beginning to bite; the broker expects the loan-to-value percentage to rise above 60% over the next could of years as asset values fall.
On the plus side, Liberum believes Intu has a collection of retail assets that will remain “relevant in a structurally challenged industry”. One option to reduce gearing would be to sell partial stakes in the group's “crown jewels”.
“This could be an opportunity for a new CEO less associated with the group’s legacy position, but it will likely get worse before it gets better,” predicted Liberum, as it slashed its target price to 145p from 200p.