The stock market is an emporium, stuffed with endlessly diverse goodies all vying for the attention of investors. You’d 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.
Mountview’s shares trade at a discount of over 40% to the company’s net asset value (NAV). Concha’s shares trade at a premium of something like 1,500% to the cash that represents just about the whole of the firm’s NAV.
Businesses don’t come any easier to understand than Mountview’s. 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 today’s 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 company’s accounting NAV from £71 a share to a true NAV of over £160 a share.
Even though Mountview’s 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 £160 a share.
Concha’s shares are trading at 6p at the time of writing, giving the company a market capitalisation of close to £90m. At Concha’s 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.
Concha’s 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 haven’t 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 company’s 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 doesn’t look like the deal of the century to me — not when I can get my hands on £1.70 of Mountview’s concrete assets for every £1 I pay for shares.