A company’s shares can sometimes trade at a significant discount to the true value of its assets. World stock markets may have surged in November, but I’m still seeing plenty of discount shares on offer. Here are three such value stocks on the UK market I reckon have strong prospects of delivering high returns.
UK value stocks #1
M.P. Evans Group (LSE: MPE) is a producer of sustainable crude palm oil from plantations in Indonesia. Its well invested estates and strategy of steady expansion underpin its commitment to pay attractive returns to investors through increasing dividends.
This £346m-cap FTSE AIM 50 stock trades at a discount to Asian peers. A few years ago, shareholders resoundingly rejected a 740p-a-share offer from one such peer on the grounds it substantially undervalued the business. The latest independent valuation of its assets gives the group an equity value of 1,001p per share.
The share price is 635p, as I’m writing. This is a 14% discount to the rejected offer and a 37% discount to the independent valuation. With the prospect of steady asset expansion, rising profits and increasing dividends, MPE’s shares look very buyable to my eye.
UK value stocks #2
Another business I’d be happy to buy a slice of is Ocean Wilsons Holdings (LSE: OCN). This one is listed on the FTSE main market, and has a capitalisation of £241.4m.
OCN has a controlling 58.16% interest in Sao Paolo-listed Wilson Sons — one of the largest providers of maritime services (towage, container terminals and so on) in Brazil. OCN also has a portfolio of around 80 international fund investments (e.g. Findlay Park American and Adelphi European Select Equity).
Based on Wilson Sons’ latest share price, and current exchange rates, OCN’s interest in the business can be valued at £243.4m. This is equivalent to 688p per OCN share. Meanwhile, the value of its investment portfolio last reported (31 October) was £211m, or 597p per OCN share.
Therefore, the sum of 688p and 597p gives OCN shares an intrinsic value of 1,285p. Yet they’re trading at 682.5p — an implied discount of 47%. Put another way, OCN shares buy you Wilson Sons at a small discount to its price on the Sao Paolo stock exchange and you get the £211m investment portfolio thrown in for free. My calculations suggest OCN is another top value stock on the UK market.
A cornucopia of cheap assets
Finally, I’d also be happy to buy FTSE 250-listed AVI Global Trust (LSE: AGT). It scours the globe for opportunities — typically holding companies and closed-end funds — where the price is at a significant discount to the estimated underlying net asset value (NAV).
For example, its top 10 holdings at its last year-end (30 September) included Pershing Square (estimated discount 30%), Softbank (56%) and Prosus (34%).
And AVI Global’s holdings each own, or have an interest in, a number of assets. For example, you’ll find coffeehouse chain Starbucks, and Chinese technology giants Alibaba and Tencent in the portfolios of Pershing, Softbank and Prosus respectively.
In addition to the discounts to NAV of its holdings, AVI Global is trading at a discount. Its share price of 794p is just over 10% below its last reported NAV of 883p (at market close on Thursday). As such, it’s another great UK value stock in my book.
