BROKERS' VIEWS: Intermediate Capital remains selective

Mezzanine finance specialist Intermediate Capital's trading update this month reported a decent performance from the group's investment portfolio. Indeed, 64 per cent of all investments in the three months to end-June performed at or above the prior year's level - that's impressive, especially given that the figure represents an improvement from 59 per cent in the previous three months.

Realisations have also been strong, and include a capital gain of £24m from the sale of its investment in Sebia and £7m from selling Pasteur Cerba to PAI Partners. Further realisations are expected, although management warned that renewed market volatility will affect the timing of further sales.

The group is, however, cautious on new investments. Just £10m was invested during the period in two companies that were already in the portfolio, although management expects to deploy up to £200m in the current year. The company is, however, well placed to make further investments should opportunities arise. Undrawn debt facilities at end-June stood at £780m which, together with third party funds, creates an investment capacity of around €2bn (£1.68bn). The fund management side is also performing well, with credit funds - comprising mainly senior loans and high-yield bonds - not having experienced any defaults during the quarter.

Numis Securities says...

Buy. Impairment charges are likely to be minimal and well below our previous forecast - should this trend continue, a substantial increase in forecast profits can be expected. Although, with only one quarter's data, our forecasts remain unchanged for now. Realisations are also running ahead of expectations, with 37 per cent of full-year forecast realisations achieved in the first quarter. Yet the investment business is being valued at a 54 per cent discount to NAV, there's an impressive yield and the shares trade on under seven times expected earnings. Expect 2010-11 pre-tax profits of £144.9m and EPS of 25.2p.

Execution Noble says...

Buy. Portfolio performance continues to improve, even though two underperforming Spanish assets were identified - Applus+ and Orizonia - in June. The pair have a carrying value of £136m although, so far, no impairments charges have been set aside. Meanwhile, capital gains remain strong at £31m, while the balance sheet provides plenty of headroom for further expansion. Yet, at current levels, the shares are trading at a 15 per cent discount to NAV and yield 6 per cent - we calculate fair value at 381p.