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MARKET COMMENT
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Investors can often profit from asset plays. The strategy is simple: buy into a company whose market capitalisation is less than its balance sheet value and hope a bigger fish will spot the potential and make everyone a profit. The best asset plays are those that hold large chunks of cash, liquid investments and property -- items that are readily re-usable or re-saleable. On the other hand, assets such as plant and machinery and fixtures and fittings often in reality have market values less than their accounting worth, especially if the firm concerned is struggling. Stocks and debtors (money owed by a supplier) may also disappoint in a fire sale situation, while asset investors traditionally price intangibles (such as goodwill) at zero. As subscribers of the Motley Fool's Value Investor newsletter will know, Yates (LSE: YTE) is a very good example of what to look for in an asset play. Despite the small-cap pub group declaring a tangible asset base of 171p per share last November, its share price had remained steadfastly around the 100p level for much of 2004. Notably, Yates' assets comprised mainly of property, much of it freehold, with a lot of it in the books at 1999 prices. Admittedly the balance sheet included some relatively large borrowings and the group was undergoing a turnaround as well, but a price to book of under 0.6 seemed to factor in all the risks. Adding to the Yates value case was a reassuring trading statement in March this year, scope for decent margin (and thus earnings) improvements and a respectable 5% dividend yield (at 100p a share). Not surprisingly perhaps, the management launched a 140p per share offer in June, which presented canny asset buyers with a 40% gain in just a few months. Asset plays don't always produce such super-quick returns of course, but attractive assets priced at a big discount can provide the patient with more than a few pleasant surprises. Maynard Paton writes every month for the Motley Fool's Value Investor newsletter. He tipped Yates in the May edition at 103p and continues to search for undervalued asset plays. To learn more about value investing and receive a FREE 30-day trial of the Value Investor newsletter, click here.