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Conygar plans for shareholder value creation

The cash rich Aim-traded property vulture fund trades on a hefty discount to book value.
December 2, 2019

Aim-traded property vulture fund Conygar (CIC:140p) has delivered a flat second half net asset value (NAV) per share performance, following an a £18.5m hit in the first half of the year on the carrying value of its site at Haverfordwest to reflect weaker demand from major housebuilders for its land parcels and from potential home owners, too. Construction of the first phase of 115 homes will commence at the start of 2020 and the site now only accounts for 7 per cent of Conygar’s NAV of £100m (178p a share) at the 30 September 2019 financial year-end.

Valuation gains that offset part of the hefty write-down include a £4.8m surplus on its retail park at Cross Hands, in south west Wales. The site is held in the company’s accounts at £18.3m (34p a share) and 90 per cent of the 100,000 sq ft of space is now let after a new 23,000 square foot (sq ft) Lidl store opened in September, footwear retailer Shoe Zone took 5,000 sq ft of space last month, and Burger King has committed to a 2,750 sq ft restaurant. Post the financial year-end, Conygar received net proceeds of £4.2m from the forward sale of a 20,000 sq ft B&M Retail unit in Ashby-de-la-Zouch, Derbyshire that was carried in the 2019 accounts at £3.1m, highlighting that it’s possible to realise value for shareholders even in tougher retail conditions. The board recycled £3.95m of the cash from that disposal into buying back 2.93m shares at 135p last week, a sensible use of funds given the repurchase is NAV per share accretive.

Conygar still retains £39.9m (75p a share) of cash on its balance sheet and has several sites that could generate material gains. For instance, the conditional sale subject to planning consent of an industrial property in Selly Oak, Birmingham, to a well-known student accommodation provider has potential to realise a profit for Conygar of more than double the £3.5m acquisition cost of the site. The purchaser is expected to submit a planning application for a 608 unit scheme in the largely residential area in the coming months.

However, that’s small fry compared to the potential gains to be made at Conygar’s mixed-use scheme in Nottingham city centre that is held in the company’s accounts at £15.5m (29p a share). The 37-acre site has planning consent for construction of a 2m sq ft scheme consisting of offices, student housing, private residential and build to rent flats, a hotel and an associated food and beverage offering and, potentially, an entertainment and leisure venue. It has a gross development value north of £600m, so the company is looking at options including partnering on the project.

True, the shares have drifted slightly since I covered the interim results (‘Conygar’s hidden value revealed’, 14 May 2019), and are shy of the 160p entry point in my 2018 Bargain Shares Portfolio , but with cash backing up £39.9m of  the company’s £75m market capitalisation, effectively Conygar’s investment and development portfolio is in the price for 40 per cent less than book value even though there is obvious potential to create material value for shareholders from the Nottingham scheme, and on other development projects, too. Buy.

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