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BUZZ-Debenhams: pension deficit fears roil shares
October 17, 2016 / 2:26 PM / a year ago

BUZZ-Debenhams: pension deficit fears roil shares

** Sharp sell-off in Debenhams on Monday amid Morgan Stanley concern over possible material pension deficit

** Shares down as much as 4 pct earlier in the day, last down 2.3 pct

** Smith & Williamson’s Tineke Frikkee, who bought DEB shares post-Brexit vote, reckons market overly pessimistic (DEB very cash generative)

** MS flags possible pension deficit >£200m on a scheme that was in surplus this time last yr in context of a co whose market cap has fallen to <£700m (FY results Oct 27)

** But for Frikkee, the key to pension fund deficits is the impact on co cashflow (v size of deficit compared to market cap - deficits and market caps vary over time, pension fund deficit cash contributions vary less and only at 3 yearly change-points)

** PM says possible change in cash contribution will be agreed June 2018 (if using same timeline as last one with DEB)

** While she deems it likely its cash contribution will go up then, highlights it is a very cash generative business

** Says if deficit turns out as MS suggests, £200m, co’s annual contribution could go up to £20m a year. This would be unhelpful, but at current cash flow generation it can afford to pay this (after paying interest costs and tax and dividend) (RM: tricia.wright1.thomsonreuters.com@reuters.net)

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