The stock market is an emporium, stuffed with endlessly diverse goodies all vying for the attention of investors. Youd be hard pressed, though, to find two more contrasting companies than Mountview Estates (LSE: MTVW) and Concha (LSE: CHA).
Mountview invests in bricks and mortar and has been around since the 1930s. Concha is a fledgling investment company little more than a cash shell as yet intent on identifying and acquiring interests in technology, media and communication businesses.
Mountviews shares trade at a discount of over 40% to the companys net asset value (NAV). Conchas shares trade at a premium of something like 1,500% to the cash that represents just about the whole of the firms NAV.
Businesses dont come any easier to understand than Mountviews. The company buys residential properties with regulated and life tenancies at a discount to their notional vacant-possession value, then sells them when they eventually become vacant. Mountview profits from a combination of the initial differential and any rise in the value of the property in the period between buying and selling. How simple is that!
Mountview today announced its half-year results, which showed turnover up 28%, earnings per share up 55%, and a doubling of the interim dividend. Impressive though the trading performance was, the big news was on property valuation.
Mountview holds most of the properties on its balance sheet at cost or net realisable value, whichever is the lower. Given the lengthy holding period of many properties, investors have long speculated about what the portfolio might be worth if it was valued at todays market valuation. Today we found out.
Mountview told us that properties on the books at 318m actually have a market value of 666m. This increases the companys accounting NAV from 71 a share to a true NAV of over 16 a share.
Even though Mountviews shares have seen a strong rise in anticipation of news of the market valuation and are up a further 8% today at the time of writing the company still looks undervalued at 9.40 a share, compared with that NAV of over 16 a share.
Conchas shares are trading at 6p at the time of writing, giving the company a market capitalisation of close to 90m. At Conchas last balance sheet date (30 June), NAV was 2.4m, of which cash accounted for 1.8m. There have been subsequent fundraisings, and I calculate cash is now around 6m.
Conchas top man is executive chairman Chris Akers. His main claim to fame aside from a spell as chief executive of Leeds United football club (1996-98) is founding a little company called Sports Internet Group at the height of dotcom mania and selling it to British Sky Broadcasting for 300m a year later in 2000. His subsequent ventures havent been nearly as successful, and there have been some downright disasters.
What is the deal investors in Concha today are taking on? Well, with the companys market capitalisation of around 90m and cash assets of about 6m, for every 1 you pay for shares you are asking Mr Akers to deliver you a return on that sum by investing less than 7p of cash he has at his disposal.
Now, the technology, media and communication space may be sexy, but that doesnt look like the deal of the century to me not when I can get my hands on 1.70 of Mountviews concrete assets for every 1 I pay for shares.
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G A Chester has no position in any shares mentioned. The Motley Fool UK owns shares of Mountview Estates. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.