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Morgan Stanley downgrades Debenhams amid pension concerns

Morgan Stanley has downgraded Debenhams to “equalweight” from ”overweight” and cut its price target from 95p to 70p based on concerns over the company’s pension deficit.

The news emerged as new chief executive Sergio Bucher took up his post yesterday.

“When Debenhams reports its prelims next Thursday, we expect the operating results to be routine,” said Morgan Stanley. ”We are concerned, however, that these may be overshadowed by the emergence of a material pension deficit,” the bank said.

“Factoring in a £250m pension deficit into our valuation work reduces our estimate of fair value from circa 95p to circa 70p per share, highlighting how geared Debenhams’ equity value has become to even small changes in assumptions.”

However, the price target and rating were said to be “heavily dependent on the assumption that a £250m pension deficit will emerge” and the bank said it could be wide of the mark due to a lack of visibility on the underlying assets in the scheme.

Debenhams declined to comment.

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