Quintain Estates:2 Substantial London Urban Regeneration Schemes

Quintain (QED.LSE) is a London-focused property developer and investor. Its key assets are two large-scale urban regeneration schemes in Wembley and the Greenwich Peninsula, which it plans to develop in discrete residential and commercial phases over the next 10 to 20 years. These projects are supplemented by an asset management division with £2.2bn under management, which provides a recurring income stream. Delivery of the two schemes is the group’s major potential source of significant and growing cash flows from 2016 onwards. We expect more visibility on funding plans for Wembley, plus evidence of residential values and demand, with the launch of pre-sales in the first half of next year. These should help validate the projected revenues and profitability, which are at the core of the valuation.

Two substantial London urban regeneration schemes
The two developments have potential to deliver 15,000 new homes over the next 10-20 years (compared with c 100,000 pa UK average), offices, retail space, leisure and other infrastructure. Phased delivery in Greenwich is effectively funded via a £300m facility provided by the joint venture partner. Wembley is wholly owned by Quintain, which is currently completing new retail and leisure near the national stadium, part of a strategy to create an attractive destination for the target 28-42 demographic. Substantial residential development should get underway over the next six to 12 months at both locations. Greenwich received detailed consent for its next residential phase in March and a resolution to grant further consents in July.

Financials: Funding Wembley, reducing gearing
The group’s priorities are to generate funding for Wembley while cutting net debt. It aims to sell secondary regional property held by its asset management business or non-strategic assets from its regeneration portfolios (the sale of a 50% stake in the Hilton Wembley recently generated £30m), to create a robust, lower-geared platform upon which to build the momentum of its developments. Net debt was £444m at year-end March 2013, 82% gearing; the 12-month target is to reduce this to £400m.

Valuation: 19% discount to FY13 NAV of 104p
The shares have recovered to trade at around 19% below FY13 NAV. We explore possible reasons for this, catalysts to close that gap over the course of the next six to 12 months and the potential for NAV growth over the medium term.

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