Despite the Covid-19 lockdown continuing, FTSE share prices have been steadily strengthening. After dipping below 5,000 points in March, the FTSE 100 has since regained 16%. That’s echoed by the FTSE All-share index, which is up 17.5% since the dip.
I was a little surprised to see retail property investor Intu Properties (LSE: INTU) soaring on Tuesday morning. But as I write, the shares are up 30%, among the day’s winning share prices. That’s still more than 50% down since the Covid-19 pandemic started hitting the stock market. But it’s a lot better than the 70% drop we were looking at a week ago.
Before we get excited about a potential Intu recovery, we need to bear in mind that Intu shares are down 98% over the past five years.
Recovery share prices
Still, it’s clearly tempting to buy into recovering share prices. And when it’s a company whose sector is almost certain to bounce back, the temptation can be even stronger.
Saying that, I’ve been pessimistic about Intu’s prospects recently. For one thing, the company is struggling to get its rents paid. It’s under a heavy debt burden too.
When the lockdown ends, FTSE share prices in general should rise. And badly depressed share prices like Intu’s could be among the big winners. That is, if Intu survives the crisis and rents start to come in again.
But I still think there’s a realistic chance Intu could go bust. Or at least require a rescue deal that could leave current investors heavily diluted. Right now, I think it’s way too early to buy Intu as a recovery stock.
FTSE rebound
AA (LSE: AA) shares fell 65% at their worst point during the coronavirus pandemic. But an inspiring recovery, helped by another 30% gain on Tuesday, has seen that pulled back to a fall of 43%.
That’s still a big loss, but I’m seriously wondering if AA looks like a good value proposition right now. After all, in P/E terms, AA is down with the lowest valued share prices at the moment.
AA shares are on a trailing P/E multiple of under two, based on the firm’s 31 March update for the year ended in January. The full results themselves are currently delayed.
Cash vs debt
The company also reported cash and equivalents of £149m, with an available working capital facility of £50m. “We remained well within our financial covenants at year end,” it added.
Although business is suffering, that might be all the firm needs for operational purposes. But, as my Motley Fool colleague Thomas Carr has pointed out, AA has to maintain big debt repayments too. Net interest costs of £166m last year suggest there’s very little liquidity leeway here. I fear AA might need to issue new equity to see it through.
If it can survive without that, the value proposition could put it among today’s tempting share prices. I would want to see a long-term commitment to running at considerably lower debt levels, mind. But if fresh cash is needed, the apparent value could fly out of the window.