Conygar cashed up to target material development gains

Having sold off its investment portfolio to Regional Reit (RGL:99p) in March 2017, and taken 26.2m shares in the company as part of the consideration, it has sold the whole stake for £25.5m. That represented a modest loss, which was mostly offset by dividend income received from Regional Reit. Conygar then spent £11.8m buying back 10.7 per cent of its share capital at a 16 per cent discount to March 2018 net asset value (NAV) of 198p a share, and since the September 2018 half-year end has repurchased a further £4.4m shares at 171.5p to give a spot NAV of £116m, or 203p a share, based on the current share count of 57.2m.

Adjust for the share buybacks and Conygar’s pro-forma net cash pile of £45.7m equates to 80p a share, or almost half the current share price, and will be boosted further from forward sales of a B&M Retail unit in Ashby-de-la-Zouch, Derbyshire, (£4.3m proceeds), and a Premier Inn Hotel at Parc Cybi, Holyhead, (£6.9m) which is due for completion early in 2019. A pre-let has also been agreed with discount retailer Lidl for a 23,000 square foot (sq ft) at Cross Hands retail park, South Wales, which is due to complete next autumn. This means that 75,000 sq ft of the retail park will be occupied, leaving just 15,000 sq ft of space to fill, and giving another boost to the £9.6m carrying value of the development in Conygar’s accounts.

The most immediate catalyst for a share price re-rating will be the imminent planning decision on a proposed 2m sq ft development on the former Boots HQ in Nottingham city centre, a 37.4-acre site located close to the train station, encompassing a mixture of office, residential, student accommodation and leisure facilities. Conygar acquired the site for £13.5m in December 2016 and it’s currently in the books for £15m, accounting for a fifth of the company’s £70m portfolio of investment and development properties. It has the potential to generate material development gains for Conygar’s shareholders, one reason why the asset hurdle under a new profit sharing plan for senior management has been set at a fully diluted NAV per share of at least 250p before any payout will be made. That's worth noting as is the next requirement that the mid-market share price must average at least 230p in the three months prior to any payment under the scheme, thus aligning the interests of the board and outside shareholders.

Conygar’s share price has risen by a modest 6 per cent since I highlighted the potential back in February and has contributed to the 12.6 per cent total return on my 2018 Bargain Shares Portfolio, a significant outperformance of the FTSE Aim All-share index which has declined by 12 per cent on a total return basis during the same 10-month period. I fully expect Conygar's share price to continue to outperform as the company books valuation gains as its property developments complete and the bumper cash pile is recycled into NAV per share accretive projects. Buy.

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