A few months ago, I owned a penny stock by the name of Logistics Development Group (LSE: LDG). The company had what is known as a tender offer, buying shares from shareholders at a higher price than they had been selling for on the market. Between that and a market sale, I got rid of my whole investment in Logistics Development Group and banked a tidy profit.
Still, I have been looking at the stock again recently. I think it is one investors should consider, as it still looks like a potential bargain from a long-term perspective. That is even after a 49% surge in the share price over the past year.
Selling at a deep discount
The company flies beneath many investors’ radar, as its share price is in pennies and even after the past year’s rise, its market capitalisation is still a fairly modest £66m.
It has started to issue more frequent updates on its net asset value than it used to, potentially making it easier for investors to value the business. The most recent valuation, as of 31 March, was 24.6p per share.
Currently, the stock sells for around 16p. That means that it sells for over 50% less than its net asset value.
At face value, that seems like an obvious bargain. In practice, things may not be so simple. That net asset value is not cash sitting in the bank. It largely consists of a small number of shareholdings, such as Finsbury Food Group, IT company SQLI, and Alliance Pharma. Those three key investments are all private companies, meaning that it is hard to assess their value with a high degree of accuracy.
Long-term potential
However, just because it can be hard to value private companies accurately does not necessarily mean that such valuations are wrong.
Logistics Development Group has a track record of buying into strong businesses at attractive valuations. Over time, that can help it realise profits. The performance of the stock over the past year demonstrates the windfall this can potentially mean for investors when things go well.
Last week, the business announced its latest investment: £15m into APC, the UK’s largest independent parcel delivery network. The deal structure is fairly convoluted and Logistics Development Group has set up a new senior debt facility of £30m to help support the deal.
Given its size, managing the balance sheet smartly remains a risk for Logistics Development Group. It ended last year with cash and cash equivalents of £30m, but the tender offer and other corporate activity since then means that the balance sheet may look very different the next time the company publishes it.
However, I see this penny stock as having significant long-term potential. It is selling for a sizeable discount to net asset value as it stands. If companies in which it has stakes perform well, that value could rise over time. I therefore see the share as one for investors to consider.
