In early March this year, I published an equity research report for our new Alpha online subscription service on Local Shopping Reit (LSR: 30p), a small-cap property investment company that’s in the process of selling off its properties with a view to returning the cash to shareholders (Alpha company research, 5 Mar 2018).
It has made significant progress since then. In fact, in an update earlier this month the company revealed that it has sold or exchanged contracts on 36 properties since the summer for a combined consideration of £5.8m, representing a 1.1 per cent premium to their carrying value. Interestingly, 16 of the properties were sold at auction in September, realising a 2.1 per cent premium to book value, highlighting solid investor demand even in these uncertain times.
Borrowings have been wiped out completely and the company now has £3.2m in net cash reserves, a sum that will be boosted by £13.8m of net sales proceeds from properties on which contracts have exchanged and are awaiting completion. This leaves just 42 properties [of the original 107 properties held at the end of March 2018] to dispose of, which have a carrying value of £13.6m. Sales have been agreed on 10 of them for an aggregate consideration of £3.1m, leaving 32 properties to sell, half of which are listed for auction this month.
The bottom line is that after taking all costs into account, including corporate wind-up costs, net realisable value for shareholders is estimated by the directors at between 33p and 34.5p a share, albeit that’s below my original realisation value estimate of 36p. Still, with the end game in sight, and the shares trading on a bid-offer spread of 29.6p to 30p, there is decent upside to exploit ahead of the next sales update in November. Buy.
■ Simon Thompson's new book Successful Stock Picking Strategies can be purchased online at www.ypdbooks.com, or by telephoning YPDBooks on 01904 431 213 to place an order. It is being sold through no other source and is priced at £16.95 plus £2.95 postage and packaging. Simon's second book Stock Picking for Profit has been reprinted and is available to purchase online at www.ypdbooks.com for £16.95, plus £2.95 postage and packaging, or by telephoning YPDBooks on 01904 431 213 to place an order. Details of the content of both books can be viewed on www.ypdbooks.com.
