London developer Quintain (QED) is in talks to sell its regional property portfolio for £40m. This would be a relief for shareholders, as the portfolio, called SeQuel, has been a serial underperformer in recent years. It lost 16.6 per cent of its value over the 12 months to 31 March, adding £11m to the valuation deficit - more than twice the profit it contributed from rents.
But the deal is far from sealed. The buyer would be a tiny Aim-traded shell company called Palace Capital (PCA). The company had net assets of just £121,655 at the year-end, consisting mainly of a £2m shop portfolio in Cheshire and £1.8m of debt. It wants to raise £23.5m of new equity to support the transaction, which may prove a tall order as the company's current share register is dominated by individual investors. Palace Capital does have approval for a £20m loan if it can raise the equity, however.
At 88p, Quintain's shares are up 54 per cent on our tip (Buy, 57p, 11 Oct 2012), but still trade at a 15 per cent discount to book value of 104p. The easy money has been made, yet with sentiment turning in both the housing and regional office markets the shares still come with recovery prospects.