Strategic Review of 2 Financial Stocks: Intu Properties PLC and City of London Investment Group PLC

All the major benchmark indices have shown signs of a swift recovery over the past week from lows hit in March. The British and European markets fell for a second straight day (before the market close on 9^th June 2020) and following were the key macro triggers:

• Eurostat reported that the GDP of 19 countries contracted 3.6 per cent (quarter on quarter) in the first quarter of 2020, primarily driven by the plunge in household spending and investment.
• Oil prices slipped by around 1 per cent in today’s trading session as both WTI and Brent crude oil benchmark indices were down.
• UK retailers shown a sharp fall in May sales, though lesser than April.
• As per the treasury, COVID loans for UK businesses topped GBP 35 billion across three emergency credit programmes - Bounce Back Loan Scheme, Coronavirus Business Interruption Loan Scheme and Job Retention Scheme.

Considering the above market sentiments, we are going to discuss two general financial stocks today, Intu Properties PLC (LON:INTU) and City of London Investment Group PLC (LON:CLIG). As on 9^th June 2020 (before the market close at 11.55 AM GMT+1), both INTU and CLIG inched higher and gained around 10.08 per cent and 7.83 per cent, respectively. It is mindful to note that, the City of London Investment Group PLC has proposed all-share merger with Karpus Management today. In order to better understand the stock price movements of both the Companies, we will walk through their recent regulatory and trading updates and check how the management guidance place the Companies in the future market.

INTU PROPERTIES PLC (LON:INTU) – Renegotiating Debt Payment Terms with Lenders

INTU PROPERTIES PLC is a constituent of FTSE All Share index and listed on the London Stock Exchange since 24^th June 1999. The Company is a British headquartered real estate investment trust (REITs), which primary operations in the UK and Spain. It manages and owns around 20 shopping centres and caters to around 400 million visitors every year.

(Source: Company Website)

Recent Significant Developments of 2020

18^th May 2020: Post the announcement on 1^st May 2020 regarding the waiver of certain covenants against its revolving credit facility until 26^th June 2020, the Group unveiled an update on discussion with lenders regarding standstill arrangements to facilitate maturity payments no later than 31^st December 2021.

13^th May 2020: The Group completed the disposal of its shopping centre, Puerto Venecia.

Market Update – Collected 40 per cent of Rent and Agreed Waivers for Certain Potential Breaches.

On 1st May 2020, the Group provided an update on the RCF (Revolving credit facility) as well as additional Covid-19 update. The Company has been in talks with the RCF lenders to obtain waiver on few provisions related to the facility. INTU confirmed that lenders have agreed for waiver subject to few compliance conditions until 26th June 2020. Additional Highlights are:

• The Group is now offering its customers to pay monthly rents at the end of 2020 and are in discussions with customers for revised plans for payments.
• The Company is operating on a semi-closed basis, and only essential stores are opened.
• INTU has furloughed nearly 20 per cent of its staff at head office and 60 per cent in the centres. The Board has voluntarily agreed to take a reduced salary by 20 per cent for three months period. The Group has taken effective steps to reduce costs and preserve cash to support its customers.
• Intu Properties also announced the selection of David Hargrave. Mr Hargrave will hold the responsibilities of Chief Restructuring Officer.

Share Price Performance

(Source: EODHD/Others, Thomson Reuters) -1-Year Chart as of June 9th, 2020, before the market close

INTU’s shares were quoting at GBX 8.02 on 9th June 2020 (before the market close at 1:54 PM GMT+1). Stock's 52 weeks High is GBX 89.88 and Low is GBX 3.10. Total outstanding M-Cap. (market capitalization) stood at approximately GBP 97.65 million.

Business Outlook

The Company has received 40 per cent of the rent due for its Q2 of FY20. It is offering customers the ability to make monthly rent payment through to the end of 2020 and is in advanced discussions with clients representing further 28 per cent of the rent due. With prevailing lockdown scenario to control the COVID-19 outbreak, the Company would face like-for-like net rental income to decrease as only essential services are permitted to remain open by the government. Moreover, government measures such as business rates suspension and tax payment deferral might help the company.

City of London Investment Group PLC (LON:CLIG) – Reinforcing the Group’s Presence in the US by Acquiring Karpus Management, Inc.

City of London Investment Group PLC is a constituent of FTSE All Share index and listed on the London Stock Exchange since 29^th October 2010. The Company, together with its subsidiaries, operating as an Asset Management Group. It is engaged in emerging market closed-end fund investment, with an institutional client focus.

The Group will release its full-year preliminary results for FY20 on 14^th September 2020.

(Source: Presentation, Company Website)

Synopsis of Recent Major Regulatory Updates

9^th June 2020: The Company entered a merger agreement to acquire Karpus Management, Inc. The transaction will be pursued by issuing around 24,118,400 New Shares at a price of 325 pence per share, equating a total of GBP 78.4 million.

21^st April 2020: The Group appeared sceptical regarding the final dividend for FY20 (ending on 30^th June 2020) due to prolonged disruption in economies and stock markets. As at 31^st March 2020, the Group had GBP 3.6 billion of funds under management.

Trading Update – Decent Balance Sheet with Zero Debt

On 21^st April 2020, the Company provided the trading update, with USD 4.4 billion (GBP 3.6 billion) of funds under management at 31^st March 2020 as compared with previous period (31^st December 2019: USD 6 billion (GBP 4.5 billion)). Some Additional Highlights are stated below:

• Led by a closed-end fund discount widening and NAV (Net Asset Value) underperformance, the Group’s all strategies underperformed over the period. This was mainly acute in March 2020 (economic dislocation caused by COVID-19), which prompted selling pressure across all asset classes.
• In the period under review, the Developed strategies and Opportunistic Value recorded combined net inflows of USD 25 million, while the Frontier strategy and the EM strategies witnessed net inflows of USD 8 million and USD 68 million.

Share Price Performance

(Source: EODHD/Others, Thomson Reuters) -1-Year Chart as of June 9th, 2020, before the market close

CLIG’s shares were quoting at GBX 365.00 on 9th June 2020 (before the market close at 2:05 PM GMT+1). Stock's 52 weeks High is GBX 479.52 and Low is GBX 264.00. Total outstanding M-Cap. (market capitalization) stood at approximately GBP 86.32 million.

Business Outlook

The Group maintains a robust balance sheet with zero debt and significant cash reserves. The Group also unveiled (on 9^th June 2020) its plan to buy US investment firm Karpus Management Incorporation in an all-share merger that will see the owners of Karpus take a 48 per cent stake in CLIG. Currently, the company has been focussed on its services and customer support, which has resulted in a higher level of customer satisfaction.