Credit Suisse upgrades Capital & Counties after share price drop

Capital & Counties got a boost on Monday as Credit Suisse upped the stock to 'outperform' from 'neutral' following a drop in the share price since a potential demerger was announced earlier in the year.

CapCo said back in May that it was considering a demerger that would result in two separately-listed businesses based around its estates in Earl's Court and Covent Garden, each with its own investment prospects. Since then, the shares have fallen by around 20%, partly on that announcement and partly reflecting a strong run prior to the announcement on anticipation of a trade sale.

Credit Suisse said that despite valuation writedowns, investors appear to have become even more pessimistic on the value of the company's Earl's Court asset, almost writing it off entirely. As a result of valuation declines and disposals, CapCo's Covent Garden assets now comprises almost 80% of the company's valuation, compared to just over 50% three years ago, meaning Earl's Court is less material to the group.

"Our recent tour of Covent Garden with management was a reminder of the successful repositioning of this world class retail and dining destination. Although 2.3% initial yield is low, significant reversionary potential make the 3.6% equivalent yield comparable to peers and we believe that Covent Garden is a truly world class asset that would attract a premium price were it ever sold to a private buyer."

Credit Suisse cut its price target on CapCo to 306p from 335p.

At 1550 BST, the shares were up 1.8% to 267.50p.