That capital return was made earlier this week and is equivalent to 38 per cent of LXB’s previous market capitalisation and is bang in line with my prediction when I initiated coverage last autumn. The share price has adjusted accordingly for the payout and is just shy of an all-time high of 65p after accounting for capital returns. Bearing this in mind, analysts at brokerage Stifel Europe predict a net asset value per share of 79p at the September 2016 year-end, so at the current price the shares are priced on a 20 per cent discount.
This estimate assumes that LXB’s management team successfully executes a disposal of all its property assets over the next 12 months as part of an accelerated wind down of the portfolio in accordance a new shareholder mandate to “realise value from the portfolio and return cash as quickly as possible”. However, the board have highlighted “an inevitable tension between the twin goals of realising the portfolio for best value and returning cash quickly”, but is comfortable that the 'window' to the next annual meeting (scheduled for end February 2017) provides enough time for a balanced approach. They have a plan for each of the company’s investments and “will not be hurried into sales until the timing is right to optimise value”. As a result of this mandate for accelerated disposals, which represents a change in the previous strategy, no guidance has been given on the likely end value to be realised from the company’s remaining projects, most of which are forward funded by blue chip institutions under which value is realised when ownership passes from LXB as developer to the owner.
That said, although the directors state that “it is impossible to provide a forecast of what end net asset value in the portfolio will be as it is dependent on the outcome of a number of incomplete projects, some of which are subject to some material uncertainties which are still to be resolved, and now within a much reduced timescale......we remain confident that the end value for shareholders will exceed the 64.18p per share (end March 2016 net asset value) by a comfortable margin”. Clearly, Jo Duffield of LXB (3) Partners LLP, the group that includes the investment adviser to the company, believes there is value in the shares as he has just purchased 313,440 shares in the company at an average price of 63.64p each to take his stake to 1.12m shares, or 0.67 per cent of the issued share capital. This means that the individual members of LXB(3) Partners LLP now hold an aggregate total of 13.65m shares, which represents 8.11 per cent of the issued share capital.
The key here is that although LXB’s shares are priced on a 20 per cent discount to forecast book value, in the absence of more detailed guidance it’s nigh on impossible to put a figure on the final cash return to shareholders. Everything could go swimmingly well over the rest of this year in which case LXB’s shares should offer a very decent return as assets are sold and further capital is returned to shareholders. So, although I am not dismissing the possibility that the shares could offer 20 per cent upside as I stated in my article a month ago, implying an additional capital return to shareholders of 74.5p, there is the risk of a lower payout.
That said, even if the company ends up selling off its assets for the equivalent of 70p to 72p a share after accounting for wind up costs, or 10 per cent below end September 2016 book value, it still represents a decent return on the current share price. I feel that’s a more realistic target, but equally I am still comfortable advising that you continue to hold your positions and await news of further disposals in the coming months. The fact that one insider has been topping up his holding is telling. Run profits.
