Chart breakout possible at Intermediate Capital

Intermediate Capital, one of the world's largest mezzanine finance specialists, broke above 500p for the first time since spring 2013, and with good reason. A bullish third-quarter update has raised the prospect of a better-than-expected full-year and analysts have rushed to rework their numbers. Upgrades are likely to follow.

A total of €1.4 billion of new third party money was raised in the final three months of 2014, much of it by Intermediate's newly established strategies, including the Japanese mezzanine JV with Nomura, ICG Longbow Senior Debt Fund and a UK Real Estate Development fund. A third US collateralised loan obligation (CLO) was also closed.

It takes the nine-month figure to €3.1 billion, and Intermediate's "full product pipeline" is expected to result in "very strong fundraising over the coming months." That's why broker JP Morgan thinks there may be "upside risk" to its €4 billion full-year estimate.

And with the level of realisations having slowed subsequently since the first half, total assets under management (AUM) grew by 8% over the quarter to €14.9 billion. Fee-earning AUM increased by 12% in the quarter to €10.8 billion.

Bosses have already flagged plans to improve return on equity (ROE) from 9% last year to 13%. Now £69 million into a £100 million share buy-back, the programme should be complete by the time of the full-year results in May. Then, management will also provide more detail on re-gearing the balance sheet from 0.4 times to 0.8-1.2 times by July 2016.

Analysts at Liberum expect a £450 million capital return, which provides "further potential upside." There's already a prospective dividend yield of 4.4%.

"On the basis of 1x price:book on the estimated value of the loan book and a PER of 14.0x calendar 2015E earnings from asset management we derive a December 2015 price target of 525p," says JPM.

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