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Fair enough, gewillia. Cash running very low. Banks won't lend more. My hunch is that a further write-down should and will only be 5%. Not 15%- no way. That feels wrong. Worrying indeed for CEO and Interim FD to leave, but don't think we can read into it any more than that. My hunch is that if JW needs that money he can find it somehow. Lots of small actions over a long time to fix the balance sheet isn't necessarily a bad thing. I don't really think it's for the BOD to comment on value that the market puts on intu stock, nor what they could comment that's different to what they've said. I have faith that JW will be doing something to get his intu holding out of this mess as best he can. No chance he's going to write off his investment as one that went bad. By virtue of his track record, we can assume he's better than that and will fight to the death, quite possibly even win.
thanks Poker. In order to know with any certainty if the lion has a decent chance of being kept at bay, it seems that you'd need to know more than can be gleamed from publicly available info such as the 2018 accounts and updates since.
I wonder whether these institutional shareholders dumping like crazy are doing so from a position of real insight, or whether they're just following the herd (with their only certain knowledge being of the headwinds facing retail and intu's overstretched position and the declining SP).
I plan to really do my homework as best I can on figuring out whether intu really will fall to debtors. if I conclude that there is a decent chance it will not, I may well continue averaging down, even one day very aggressively relative to my modest means if the market should throw an SP much lower than where we are.
thank you Sain.
Poker- with your lion/water buffalo analogy, you clearly see it as a foregone conclusion that the lions will win (what with their teeth already being in etc). Please would you share why you see it as such a foregone conclusion that shareholders will be wiped out?
"MrNation, I took enough of a caning over Debenhams to last me a lifetime. I now understand the debt for equity situation much more acutely, and how debt fits into everything. Frankly if you can't learn from a situation like that, you shouldn't be spending money on shares in the first place.
Lesson learnt the hard way." Er, I am totally ignorant of the above. Could anyone please direct me to somewhere I can learn about this? Also, can anyone please tell me what sain@vision means by "Just take a look at the DEBS held in SPIVS for a starter"
Thanks both. On reflection, I'm starting to feel more excited about this one.
Here's why:
- Let us suppose that traditional money lenders (bless their dear souls) are no use at all for re-financing out of this fix (you're probably right on this one sain@vision).
- Let us suppose further that any private equity deal was the equivalent to all shareholders including Mr Whittaker being royally bent over a barrel.
- Let us suppose further that the perfect storm gathers, more covenant breaches, chunky write-downs, lenders looking to all of their protective mechanisms, SP in the range of 1p to 10p.
What would serve Whittaker's interests in this situation? (admittedly my calculations are extremely crude)
- giving in and handing over the assets to the circling vultures- his stake goes to 0.37B x 0p (£0);
- do that stomach-churningly appalling distressed deal with private equity unbefitting of a self-made billionaire (intu pull through and his stake goes to 0.37B x a fairly flat 20p (£74m plus let's say an average 1p future annual dividend post 2025 ); or
- dig deep into his personal wealth, come up with something of the order to £250m, loaning it to intu, with a reassurance to the market that there could be more if needed as intu has his full support (his stake rebounds to 0.37B x 100p (£370m) and he gets the significant future dividend potential of the assets and upside in SP, plus makes a small return as intu's banker.
In summary, isn't he going to do all in his power to get intu out of this mess without losing his shirt?
Any thoughts on whether he actually could put up the money I'm talking about or more? His wikipedia net worth would suggest so.
Pascha - the way i've described could be good all for share holders, not just Whittaker.
Whittaker a cool head and power ally of shareholders
1.34 B shares in issue, of which Chairman Whittaker owns 0.37 B (~27% of whole). Whilst Whittaker is currently against the ropes with Intu (and shouldn’t have played his part in being so aggressive in getting Intu into such an uncomfortably overextended position), I credit him with being no fool. I also believe he’ll be able to influence the BOD against doing anything stupid in relation to shareholders’ interests (e.g. an extremely dilutive equity raise).
Riding out the storm
The sensible thing to do would appear to be to simply try to stick to the current strategy of fixing the balance sheet by keeping the rents coming in, no divi, freeze on capex, belt tightening, fight to service debts as best they can, keep the lenders/bondholders in their box, further sell offs where a necessity, push out debt maturity schedule via refinancing (even if this means higher interest and therefore lower profits over medium term). Credit is still out there and there is a functioning market for its provision (lenders will lend up to 95% LTV in residential, no reason why intu can’t find a lender at LTVs greater than 75% in REIT world). One day arrive at a place where asset values are no longer going down, operational performance remains satisfactory, p&L is positive.
Risk to reward at current SP
If future dividends and SP were to recover to as little as 10% of past levels, a buy at 15p would yield enormous returns of 1000 to 2000% over 15 years. Even stronger recovery, even better return. It may not happen, but I don’t see any reason why this is an unrealistic possibility.
Possibility of a ride to 10p, 5p, 1p seems probable. Such price action doesn’t change fundamentals and could be an unbelievably attractive opportunity.
Of course I may have missed something and have to pay the price of a permanent trip to 0p. Wouldn’t be the first time. Nor would it be my first time if correct and making wealth enhancing long term returns on a rebound.
Shorts
Hats off to the shorters who called out intu’s imprudence some years ago and have profited handsomely. Now I think we’re in an atmosphere of fear and panic, with a daring few shorters hanging on in there and probably abetted by their small army of nasty pieces of work trying to spread fear (some delusional IMHO). The institutional herd has been briskly distancing itself for many months. The knife has been falling so fast that brave long term value investors haven’t yet taken charge at all.