Numis cuts price target on Intermediate Capital

Profits, but at what cost? That's the question posed by analysts James Hamilton and David McCann at Numis to investors in shares of Intermediate Capital.The provider of mezzanine capital on Wednesday revealed a 25% decline in its loan book and a 13% fall in the profitability of its asset management arm. More significantly, the broker highlighted how the business, despite having leveraged exposure to assets that typically yield between 10-15%, only generates returns to shareholders of 9%. Due to the above the broker cut its forecasts for earnings per share (EPS) for this year and next to 36.2p (from 41.8p) and 38.9 (from 44.1p), respectively. Hence also the reduction to the company's price target, which was taken down markedly, to 363p from 475p, yielding a valuation of 0.9 times book value. So yes, the company has much to gain from an economic recovery in Europe, and has seen impairments decline from very elevated levels. Even so, they are expected to stay at double their December 2007 level."Having taken very substantial provisions through the crisis as collateral values and business earnings increase we expect Intermediate to benefit from potentially significant write-backs. Investors should not pay a premium for recovering a small amount of money they lost through the credit crisis," the broker concluded.The recommendation on the stock was kept at'reduce'. AB