Morgan Stanley has downgraded Icade to Equal-weight from Overweight following an assessment of the company’s recent results, also lowering its price target to €25 from €30. The move reflects the broker’s view that the firm’s capacity for self-driven improvement has diminished and that shareholder returns look less compelling under the updated outlook.
Analyst Ana Escalante said that, while the shares trade at distressed valuation levels, the likelihood of actual financial distress appears low - a dynamic the bank says provides some downside protection and underpins the Equal-weight rating. "Valuation is at distressed levels while probability for distress is very low, we argue, which offers some downside protection, hence our Equal-weight," she wrote in the note released Monday.
In early Paris trading, Icade’s shares fell around 2% as of 10:52 GMT.
A principal factor behind Morgan Stanley’s change of view is the slower-than-expected pace of divesting Icade’s healthcare operations. Company management reiterated that it plans to exit the healthcare segment gradually over the 2024-28 period, but also noted the unit continues to produce meaningful financial returns, supporting an opportunistic approach to disposals. As a result, Morgan Stanley has pushed out its timeline for when the healthcare exit will be completed.
The bank also reduced its expectations for dividends. With the revised assumptions tied to the healthcare disposal, Escalante no longer anticipates special dividends during the next three years. She now models a dividend yield below 8%, a level she believes will not be enough to compensate investors for the intrinsic business risk associated with Icade.
Escalante observed that the shares trade at about a 60% discount to net asset value, a gap she says continues to mirror investor concerns regarding balance-sheet strain. The analyst acknowledged that repair of the balance sheet would represent a negative scenario, but also suggested that any easing of perceived distress could support some re-rating of the stock. Nonetheless, the lack of clear near-term catalysts keeps Morgan Stanley cautious: "The shares screen cheap, but a lot of our sector does, and we no longer see potential catalysts given the slow progress with the healthcare disposal," the note stated.
Looking forward, Morgan Stanley expects further healthcare asset disposals to be protracted, with additional sales likely to extend into 2027-28 and beyond. The analyst also pointed to uncertainty regarding whether and how changes in office demand, potentially influenced by AI-driven shifts, might play out - specifically noting both the extent and timing of any such effects remain unclear.
Summary
Morgan Stanley downgraded Icade to Equal-weight from Overweight and cut its price target to €25, citing slower healthcare disposals and weaker dividend prospects as key reasons. Shares slipped about 2% in Paris trading by 10:52 GMT.
- Key points
- Morgan Stanley lowered Icade to Equal-weight and reduced the price target from €30 to €25.
- Slower-than-expected disposal of Icade’s healthcare business delayed the broker’s expected completion timeline.
- Updated assumptions remove expectations of special dividends over the next three years and imply a dividend yield below 8%.
- Risks and uncertainties
- Protracted timing for healthcare asset sales may continue to weigh on shareholder returns and investor sentiment - impacting the real estate and healthcare investment sectors.
- Market concerns about Icade’s balance-sheet stress could persist, keeping the stock at a significant discount to net asset value - affecting equity valuations in the French real estate sector.
- Unclear magnitude and timing of any AI-related changes to office demand introduces uncertainty for office real estate demand assumptions.