Bearing this in mind, I have noted some very heavy trades in the shares of Aim-traded property vulture fund Conygar (CIC: 131p). At the start of September, chief executive Robert Ware purchased 50,000 shares in his company at 129p each to take his holding up to 3.55m shares, or 4 per cent of the issued share capital. Mr Ware is a property stalwart with 25 years main board experience behind him including executive roles with Development Securities and MEPC.
Not to be outdone, executive director Preston Rabl has also topped up his holding by splashing out £321,000 purchasing a chunky 250,000 shares at a price of 128.5p. Mr Rabl also has a track record, having previously been chairman of activist investment group Laxey Partners. He is currently a director of various private companies and a partner in stockbrokers Henderson Crosthwaite. He now holds 1.15m shares, or 1.29 per cent of the issued share capital. It's not difficult to see why the directors are delving deep to makes these purchases.
Major planning permission consents not in the price
Firstly, after a long consultation period with Pembrokeshire County Council, Conygar was granted planning permission for its development at Haverfordwest, Pembrokeshire. The 93-acre site will incorporate 729 residential properties and a 60,000 sq ft Sainsbury's retail food store with car park and petrol filling station. The application also includes land for a school and public open space. Located near the town centre, the site is in the company's books at £15.24m and accounts for almost half of Conygar's development projects, which are worth a total of £31.1m.
It's therefore worth noting that the company values its development properties at cost, so when Conygar releases its half-year results to end-September in a few months' time, we can expect some guidance on the potential uplift to net asset value. It is likely to be hefty. That's because the company purchased the first 86 acres of land for just £14m in November 2010. Conygar then subsequently acquired a further seven acres on an adjoining site for £300,000, taking the total site to 93 acres. Contracts were then exchanged with Sainsbury's for the sale of nine acres for a supermarket, subject to planning consent. That has now been granted, which is important as the deal with Sainsbury's significantly changed the economics of the project and enables Conygar to bring forward the residential development, having more than covered all the infrastructure and services costs through the net proceeds from the supermarket land deal.
By my reckoning that leaves the residential land currently in the books for less than £19,000 per plot, a bargain basement price considering a 2.3 acre site with residential planning permission in the town centre is currently being marketed for £900,000. Conygar owns 86 acres of residential land. I would not be surprised if the carrying value in the accounts was doubled to £30m to value each plot at nearer £40,000.
It's also significant in terms of the company as Conygar is only valued at £113m, a deep 25 per cent discount to its March 2013 net asset value of £149m. So with 88.8m shares in issue, net asset value per share works out at 167p. In other words, my conservative estimate is that the granting of planning permission at Haverfordwest has added around 17p to book value.
The good news doesn't end there either as Conygar has a further six development projects with an aggregate carrying value of £15.9m. The largest is the Holyhead waterfront development in Anglesey, Wales, which is in the books for £8.7m. Isle of Anglesey County Council has already resolved to grant planning permission to Conygar's joint venture with Stena Line Ports Limited for its mixed-use marina development. The main elements of the scheme include: 324 apartments and townhouses; a 500-berth marina; 43,370 sq ft of marine-related retail, leisure, restaurants, hotel and office space, within a flexible design and in a prime location overlooking the marina. The section 106 planning agreement and conditions are being finalised, so expect an update from Conygar in a few months' time. The company also has some potentially very profitable waterfront developments at Pembroke Dock and Fishguard.
Regional property play
If the development upside was not enticing enough, Conygar also offers a low-cost option on the recovery in the previously out-of-favour provincial property market. My colleague Stephen Wilmot highlighted this trend last week in his buy tip on Town Centre Securities (TCSC: 222p), a company I am still very positive on having first highlighted the investment case earlier this year ('A high-yield property play in the north', 18 February 2013). The solid and well covered 4.65 per cent dividend yield and the unwarranted 20 per cent share price discount to June 2014 net asset value estimates make Town Centre Securities, which owns the Merrion shopping centre in Leeds, a great way of playing a recovery in the provincial property market. Conygar is too.
That's because at the end of March the company's regional investment portfolio was worth £173m and generated an annual rent roll of £16m, producing a 9.2 per cent yield. These properties, a mix of business parks, office, industrial and retail, are located in a variety of locations across the country, including Birmingham, Wolverhampton, Dundee, Aberdeen Lincoln, Northampton and Stafford.
Sound finances and financial management
True, the average unexpired lease is only four years and the vacancy rate is around 11 per cent, but with group net debt only £51.5m at the end of March, and refinancing of the investment portfolio now complete, there are no funding issues of concern at all. Excluding cash of £17m on the balance sheet, the loan-to-value ratio is only 46 per cent on the investment portfolio and the average cost of debt is 4.15 per cent. Finance costs are more than four times covered by the annual rent roll, which not only leaves extra cash spare for investment in the development pipeline and more opportunistic deals, but also for dividends and share buybacks.
In the last financial year to end March, the payout was lifted by 14 per cent to 1.25p, so the shares currently offer a 1 per cent dividend yield. Conygar's dividend policy is to provide some income return to shareholders, but for the most part retain profits for reinvestment in the business. But if the share price discount to net asset value is significant, the board will also use some of the company's cash to buy back shares. Last financial year, Conygar repurchased 9.1 per cent of its issued share capital, at a weighted average price of 90.8p per share. This cost £8.5m and boosted net asset value per share by 6.5p, or around 4 per cent.
Since the interim results in May, Conygar has repurchased a further 900,000 shares at prices equally spread in three deals at 117p, 118.5p and 126.5p. This not only boosts net asset value per share since the company is in effect buying assets worth 167p on the cheap, but it also removes stock from the market and underpins the share price. Expect this share repurchase programme to continue, which can only be beneficial for the share price.
Positive technical set-up
Interestingly, Conygar's share price has traded in a tight range between 123p and 131.7p for the past 10 weeks. The 14-day RSI is neutral, currently giving a reading around 50, while the price is sitting on the 50-day moving average at 128p. That trend line has offered strong support all this year and every time the shares pull back to the 50-day moving average a decent rally has ensued.
In my opinion, a breakout of the trading range is not just likely but could be imminent. The combination of director buying, a share repurchase programme, positive newsflow on the development pipeline and the embryonic signs of a recovery in regional property markets as investors head out of London to take advantage of the high yields on offer and play the economic recovery, is an attractive mix. Add to that a likely sizeable uplift in the company's net asset value when it reports full-year results at the end of November and the odds favour a positive outcome.
Needless to say, I rate the shares a trading buy on a bid-offer spread of 128p-131p. My three-month target price is 150p, subject to a likely upwards revision post the forthcoming results.
Bovis share price weakness
My trading buy on Bovis Homes (BVS: 704p) is currently under water. I advised buying the shares at 820p (‘Short-term trading buy’ 8 July 2013) and again at 790p ahead of the company's half-year results in late August (‘Profit from the property boom’, 14 August 2013). Although the price subsequently rallied to around 860p following the first of those articles, the price never hit my target price of 900p.
Moreover, the price has been trending lower since those interim results and is now close to support around 700p even though the investment case remains as strong as it was when I recommended buying in July. The 14-day RSI has a reading around 35 so is firmly in oversold territory, so a bounce could be close at hand as the share price has troughed every time the reading hit 30 in the past couple of years.
On fundamentals Bovis's shares are not highly rated either. For 2014, analysts expect the company to report revenues of around £586m, pre-tax profits of £95.5m and predict EPS will surge from around 42p this year to 56.6p. On this basis, expect a dividend of 15p. This means the shares are rated on 12 times next year's earnings estimates and offer a prospective forward yield of over 2 per cent. A price-to-book-value ratio of only 1.2 times is hardly exacting, either, once you consider that the company's land bank is very conservatively valued.
In fact, the 15,579 plots in the consented land bank have potential to generate gross profit of £733m, calculated using prevailing sales prices and build costs. In addition, Bovis has 9,341 potential plots of strategic land, and has contracts in place to acquire another 1,018 plots on 11 sites, the majority of which are expected to be added to the consented land bank by the end of this year. In other words, the land bank could end the year at around 25,000 plots or the equivalent of over 12 years output at the current run rate. This is by far the longest in the sector. And it's not as if Bovis is financially stretching the balance sheet as net debt of £48m is a minuscule 6 per cent of shareholders funds of £770m.
So, although the shares are under water, and my trading recommendation has not worked out in the timeframe I gave, I would continue holding the shares ahead of a trading statement on Friday, 8 November 2013.
Please note that I published seven other articles last week on the following companies:
■ Global Energy Developments ('Waiting for pay dirt', 23 September 2013)
■ IQE ('IQE profit-taking presents buying opportunity', 23 September 2013)
■ 32Red ('IQE profit-taking presents buying opportunity', 23 September 2013)
■ Spark Ventures ('Banking on more cash returns', 24 September 2013)
■ Macau Property Opportunities ('Blue sky territory', 24 September 2013)
■ KBC Advanced Technologies ('Riding an earnings upgrade cycle', 24 September 2013)
■ Inland ('Buying opportunity ahead of results', 25 September 2013)
■ US Dog share portfolio ('Easy as pie', 27 September 2013)
Finally, in response to requests from dozens of readers, I have published an article outlining the content of my new book, Stock Picking for Profit: 'Secrets to successful stock picking'
