The Motley Fool

The Intu share price is up 200%. Here’s what I’d do now

Image source: Getty Images.

The share price of shopping centre landlord Intu Properties (LSE: INTU) has risen by more than 200% from the all-time low seen in March. There will be plenty of bargain-hunting investors who’ve doubled their money — at least — on the Intu share price.

Despite these gains, the Intu share price is still just 9.5p at the time of writing. That’s a 93% discount to its December book value of 140p per share.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Buying property below its book value is a classic value investing technique. Get it right and the profits can be huge. But if you get it wrong, you can lose everything.

Today I want to take a fresh look at Intu and explain what I’d do today.

What are Intu shares worth?

The company’s latest accounts date from 31 December 2019 and show a net asset value of £1,904m. In simple terms, this number is the difference between the value of the group’s property portfolio (about £6.5bn) and its debts (about £4.6bn).

These numbers mean that Intu ended last year with a loan-to-value ratio of about 68%. This is quite a high level of gearing for commercial property, but in better circumstances, it might be manageable. Unfortunately, circumstances today are about as bad as you can imagine.

Cash crunch

One problem is that Intu appears to be struggling for cash. Rent collections for the first quarter of 2020 were just 40% of the total amount due. Cash flow forecasts released by the company recently suggest to me that a number of its operating companies — including Metrocentre — could run out of cash this year.

Intu’s shortage of cash is what’s known as a liquidity crunch. If this was the only problem, the group would probably be able to secure some new funding to see it through the crisis. However, Intu hasn’t been able to do this.

The share price slumped in March when major shareholders refused to bail out the company with a £1bn+ equity raise.

Lenders don’t seem keen to lend Intu any extra cash, either. Indeed, it is currently trying to reach a ‘standstill agreement’ with lenders to protect the group from expected breaches of its loan conditions.

Property price collapse

Intu’s share price has fallen by more than 95% over the last five years, as investors have bailed out of a falling market for retail property.

Its net asset value has fallen from £5bn to £1.9bn in just two years. Unfortunately, debt investors appear to think that property prices could have further to fall.

Its bonds (loans) trade on debt markets, where they can be bought and sold. As I write, its debt is trading at a big discount to its face value. This normally means that lenders don’t expect to get all of their money back.

Why the Intu share price could go to zero

Intu faces a perfect storm. It’s in danger of running out of cash and its property portfolio is highly geared in a falling market.

Big shareholders have already refused to provide the fresh cash that would be needed to solve the group’s debt problem. I can’t see that changing.

In my opinion, there is only one likely outcome — lenders will take control of the group’s assets and the Intu share price will fall to zero. If I owned Intu shares, I would sell today.

A Top Share with Enormous Growth Potential

Savvy investors like you won’t want to miss out on this timely opportunity…

Here’s your chance to discover exactly what has got our Motley Fool UK analyst all fired up about this ‘pure-play’ online business (yes, despite the pandemic!).

Not only does this company enjoy a dominant market-leading position…

But its capital-light, highly scalable business model has previously helped it deliver consistently high sales, astounding near-70% margins, and rising shareholder returns … in fact, in 2019 it returned a whopping £150m+ to shareholders in dividends and buybacks!

And here’s the really exciting part…

While COVID-19 may have thrown the company a curveball, management have acted swiftly to ensure this business is as well placed as it can be to ride out the current period of uncertainty… in fact, our analyst believes it should come roaring back to life, just as soon as normal economic activity resumes.

That’s why we think now could be the perfect time for you to start building your own stake in this exceptional business – especially given the shares look to be trading on a fairly undemanding valuation for the year to March 2021.

Click here to claim your copy of this special report now — and we’ll tell you the name of this Top Growth Share… free of charge!

Roland Head has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Where to invest £1,000 right now

Renowned stock-picker Mark Rogers and his select team of expert analysts at The Motley Fool UK have just revealed 6 "Best Buy" shares that they believe UK investors should consider buying NOW.

So if you’re looking for more top stock ideas to try and best position your portfolio in this market, then I have some good news for your today -- because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.