The same is true of property investment company Mountview Estates (MTVW: 11,500p), one of the constituents in my 2015 Bargain shares portfolio. The company’s recently released half-year results report on its corporate website are a far more revealing than the RNS version on the London Stock Exchange’s website which lacks detail. Let me explain why.
Firstly, in the six months to end September 2015, Mountview sold 94 properties for £33.7m, or three times more than the carrying value in its accounts. Mountview carries properties on its books at the lower of cost or net realisable value, so given the steep rise in property prices in recent years there is a marked difference between open market value and the much lower stated book value in the accounts.
To address this issue, the board instructed valuers Allsops to carry out a valuation of the portfolio at end of September 2014. At the time they valued more than 2,400 residential properties under regulated tenancies, 329 life tenancies and 1,127 ground rents and deemed the company’s trading stock had an open market value of £666m, or more than double its £318m carrying value on Mountview’s balance sheet. The company also owns investment properties with a conservative book value of £28m. This mark-to-market value valuation ‘surplus’ of £348m added 8,923p a share to Mountview’s IFRS net asset value per share of 7,100p at the time and meant that the shares were trading on a deep discount to an adjusted net asset value figure just north of 16,000p when I included them at 11,250p in this year’s Bargain shares portfolio. But even that valuation is now looking conservative.
Drilling through the details
That’s because the gross proceeds of £33.7m generated by the sale of the aforementioned 94 properties included one investment property which was sold for £1.7m, or £197,000 above its fair value. It also included the disposal of trading stock which had been attributed an open market value of £22.75m by Allsops in September 2014, but raised gross proceeds of £32m. In fact, I would suggest that after factoring in the huge property gains seen across London and south eastern England over the past 14 months, I would not be surprised at all to see the hidden mark-to-market valuation ‘surplus’ now exceeding £400m, a sum worth 10,250p a share.
To put this into perspective, Mountview’s IFRS conservative net asset value was £301.5m at the end of September 2015, up from £276m a year earlier, to give a net asset value per share of 7,730p. So at the very least the company now has an adjusted net asset value of 16,650p, but if I am right and the hidden surplus is in excess of £400m, then the true figure could be well north of 18,000p. Either way the shares should not be priced on a 30 per cent discount to the most conservative measure of book value.
It’s worth noting too that having raised the payout by 38 per cent to 275p a share in the financial year to end March 2015, the board have just doubled the interim payout to 200p a share. Admittedly, this is mainly due to less favourable treatment of an individual’s dividend income from the start of the next tax year, so the board have sensibly paying out forward the greater part of the annual dividend at the interim stage. However, this still means the shares offer a decent prospective dividend yield 2.6 per cent assuming a final payout of 100p a share. It could easily be higher given that Mountview runs a conservative balance sheet with net debt of only £50m representing a meagre loan-to-value ratio of seven per cent on a portfolio worth at least £700m in the open market.
Needless to say, I continue to rate Mountview’s shares a decent value buy at 11,500p.
Please note that for a limited period of time, my book Stock Picking for Profit is being offered for sale at a promotional price of £11.99 plus postage, subject to availability, full details enclosed below.
MORE FROM SIMON THOMPSON...
I have published articles on the following companies since the start of last week:
■ Ensor: Buy at 99p, target 125p ('Bid watch', 23 Nov 2015)
■ Marwyn Value Investors: Buy at 216p ('Cashing in on a top performer', 23 Nov 2015)
■ Trakm8: Run profits at 262p ('On track for record earnings', 24 Nov 2015)
■ Walker Crips Group: Buy at 49p, target 60p ('Profit from a profit surge', 24 Nov 2015)
■ Renew Holdings: Buy at 362p, new target range 390p to 400p; Cambria Automobiles: Buy at 73p, new target 90p; Tristel: Run profits at 142p; Pure Wafer: Sit tight at 165p and await details of capital distribution ('Running small cap winners', 25 November 2015)
■ Cohort: Run profits at 418p; Inland Homes: Run profits at 70p ('Riding momentum stocks', 26 November 2015)
■ Record: Hold at 28.75p ('Record awaits the Fed decision', 26 November 2015)
■ First Property: Run profits at 47.5p ('Investing for bumper gains', 30 November 2015)
■ Paragon: Run profits at 384p; Redde: Run profits at 174p; Fairpoint: Run profits at 175p ('Capitalising on investor overreactions', 1 December 2015)
■ LMS Capital: Tender your pro-rata allocation ('LMS tender on the money', 1 December 2015)
■ Vertu Motors: Buy at 78p, new target range of 85p to 90p (‘In the fast lane’, 2 December 2015)
■ MS International: Run profits at 210p, target bull market high of 240p (‘Engineered recovery’, 2 December 2015)
■ Mountview Estates: Buy at 11,500p (‘Mountview’s accounts reveal hidden value’, 2 December 2015)
■ Character Group: Buy at 485p, new target 600p (‘Playtime for a popular Character’, 2 December 2015)
■ For a limited period and strictly subject to stock availability, Simon Thompson's book Stock Picking for Profit can be purchased online at www.ypdbooks.com at a special promotional price of £11.99, plus £2.95 postage and packaging, or by telephoning YPDBooks on 01904 431 213 to place an order. It is being sold through no other source. Simon has published an article outlining the content: 'Secrets to successful stockpicking'
