Quick Update on Intu Properties Plc and ADES International Holding Plc

Quick Update on Intu Properties Plc and ADES International Holding Plc

Intu Properties Plc

London-headquartered Intu Properties Plc (LSE: INTU) is a Real Estate Investment Trust company and owner of large regional shopping centres. On June-24-1999, shares of the Intu Properties Plc got listed on the main market of the London Stock Exchange. Coronation Asset Management (Pty) Ltd., Public Investment Corporation (SOC) Ltd., BlackRock Investment Management (UK) Ltd., UBS Asset Management (UK) Ltd., BNP Paribas (Suisse) SA and Royal London Asset Management Ltd. are the major institutional investors in the company. (Source: TR)

The company has lost more than £872mn in value in the past six months. The REIT group is excessively exposed to an ongoing problem in the UK retail industry, as many high street retailers going into administration and Company Voluntary Arrangement (CVA) to slash their rental bills.

Recently in interim results statement reported by the company, the management commented that first half of 2019 has been quite challenging for the business when It witnessed further fall on like-for-like net rental and property values, primarily on account of increased level of administration and CVAs as UK’s high street retailers grapple to remain in a multi-channel world.

The whole industry, as well as the company is witnessing steep challenges, that are well documented in the past nine months period the REIT group has conducted an extensive review of the businesses that it has undertaken.

During the six months ended to June 30, 2019, the company’s net rental income declined by 7.7% as compared to six months ended 30 June 2018 to £205.2mn on a like-for-like basis, primarily driven by increased numbers of administrations and CVAs. Underlying earnings in the same period plunged by 32.5% to £66.4mn, reflecting reduced net rental income, increased financial costs and increased tax expenses due to estimated underpayment of minimum PID.  Underlying per share earnings slumped to 4.9p/share from 7.3p/share recorded in the corresponding year-ago period, the reduction was in line with the earnings.

Property revaluation deficit during the period under consideration increased by 9.6% to £872.1mn primarily because ERVs declined by 4.1% on account of a higher level of administration and CVAs.

Net Assets Value per share declined by 60 pence to 252pence in the H1FY19, mainly because of reduced property values.

Stock performance

Shares of the Intu Properties Plc which had given away approximately 80% in the past one year. Its shares have plunged near 46% since it reported interim results for the six months ended June 30, 2019 on July 31, 2019. at the time of writing it was quoting at GBX 38.07(as on August 16, 2019, before the market close, at 10:35 AM GMT). Its shares have registered a 52-week high price of GBX 204.0 and a 52-week low of GBX 33.56, and at the current trading level, shares were quoting approximately 81% below the 52-week high price level and approximately 10.3% above the 52-week low price level respectively, which reflects a steep downtrend in the stock price. The outstanding market capitalisation of the company stood at £526.43m with 1.36bn shares on the issue. Shares were quoting substantially below the 200-day, 60-day and 30-day simple moving average prices, which indicates a steep bearish trend in the stock price and near term recovery in the price seem to be challenging as the company witnesses a continued reduction in the rental income because of increased numbers of administration and CVAs. However, the 14-day Relative Strength Index was hovering in a steep oversold zone, which indicates that some pull-back could take place. Meanwhile, the 3-day RSI has started trending again towards the oversold zone from the current neutral level.  From the volume standpoint, shares 5-day average volume traded was approximately 59% above the 30-day average daily volume traded on the exchange and the stock was sliding, which reflects a steep selling interest in the stock.

Meanwhile, in the first half of 2019, the company has frozen its dividend as cash retention has started. The residential and flexible office space markets are also experiencing tough times outside of London. Cash raising is imminent, but there is no surety that the company will have easy access to the debt market in this ongoing challenging time.

ADES International Holding PLC

London Stock Exchange-listed ADES International Holding is engaged in providing oil and gas drilling and production services through group companies. The company has employed approximately 4,000 employees, who are engaged in servicing clients including major National Oil Companies (NOC) such as Saudi Aramco and Kuwait Oil Company as well as joint ventures of NOCs with global majors including BP and Eni. As on May-09-2017, shares of the company got listed on the main market of the London Stock Exchange. Norges Bank Investment Management, Hargreave Hale Ltd., Genesis Investment Management LLP and BlackRock Investment Management (UK) Ltd. are the major institutional shareholders in the company. (Source: Thomson Reuters)

Trading Update – H1 FY19

As on August 16, 2019, the holding company reported its results and trading update for the six months ended June 30, 2019 and notified to report interim results on September 27, 2019. During the period under consideration, revenue surged by 2.8 times to US$ 219.9mn from US$79.7mn recorded in the corresponding year-ago period. However, 2Q revenue stood at US$111.3mn against the revenue of US$108.7mn recorded in the preceding quarter. Revenue growth was 2.4% in the second quarter as compared to same quarter last year.

Earnings Before Interest Tax Depreciation and Amortization was up by more than 100% to US$88.0mn from US$37.8mn in H1 2018 and EBITDA margin during the period under consideration stood at 40%.  Cash and cash equivalents stood at US$ 40.3mn against US$ 23.6mn recorded at the end of Q12019. As on June 30, 2019, net debt of the company stood at US$ 614.0mn, and the company estimated that free cash flow generation to increase during the second half of the current financial year.

Recently in June, this year, the holding company updated that one of its subsidiary companies has secured a new contract of two-year in Egypt and has also bagged one-year contract extension for its onshore RIG 828 in Algeria. These new agreements further reinforce the company’s revenue prominence, which are aligned with ADES' focus on delivering organic growth.

Stock Performance

Following decent trading results reported by the company, its shares have added more than 4.0% in day's session and were quoting at GBX 13.80 (as on August 16, 2019, before the market close, at 01:31 PM GMT), with an outstanding market capitalisation of around £604.36mn. In the past 52 weeks, shares have registered a high of GBX 15 and a low of GBX 11.9, and at the current trading level, as highlighted above, shares were tending towards its 52-week high price.

However, despite a decent surge in the stock, it was still quoting below its 200-day, 60-day and 30-day simple moving averages prices and 14-day, and 9-day Relative strength index was hovering in the neutral zone and strengthening the potential for upside movement. GBX 13.9 is the immediate resistance for the stock, and GBX 13.34 is immediate support level for the stock. Also, in day's session, it started trading above the middle Bollinger Band® trending towards the upper band, which is a favourable trend for the stock price.

On a YTD basis, the stock was down by 3.1%, and in the past three months, shares have delivered a negative price return of approximately 6.0% respectively.

Market ratios

From the valuation standpoint, The LTM PE ratio of the stock was at 8.06x, whereas the industry average LTM PE ratio was at 33.46x, in terms of Price-to-Sales multiples, the company's LTM P/S stood at 2.82x, whereas industry multiple stood at 0.97x  and LTM Price-to-Book multiple was at 1.41x against the industry 2.26x respectively. The above-mentioned market ratios and two valuation multiples indicate that the stock was trading at cheaper valuation as compared to the industry average. However, in-terms of Price-to-Sale multiple, the stock was trading at almost 3x premium against the industry average.

Also, the company's TTM Return on Equity (ROE) stood at 19.54%, whereas industry average ROE was in negative during the comparable period, and the company has substantially better liquidity position against the industry peers. The current ratio of the company stood at 2.77 times, whereas peer's average current ratio stood at 1.59 times.

However, the company's payout ratio stood at zero as compared to the industry average payout ratio of 36.365%.

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