As regular readers know, I have discussed MPS at length in this blog. I have been commenting for a while we should see a re-rating of the stock should any number of catalysts materialise.
We are now seeing several catalysts in-play:
1. The NTA has increased from 11.66c (30 June) to 12.15c (31 October) or 4.2%. Life is so much easier when you buy at a massive discount and the underlying fundamentals of the business/property are getting better because we get the double uplift of a closing of the discount and an increasing underlying value. Compare this to classic value traps (I've been caught in my fair share) where the underlying value is not increasing and you just have to hope the discount to valuation closes in a reasonable period of time.
The other significant factor is that the vast majority of nasties in the portfolio have been cleaned out, so hopefully most of the potential negative news has been dealt with. The underlying property portfolio is comprised of both unlisted and listed stock. Both have their advantages and disadvantages. One of the disadvantages of the list portfolio is that some of the stocks are very illiquid: a decent pull back in the price of some of these will impact MPS' NTA.
Interestingly, this illiquidity may actually create upside in the future: the APN Regional Property Fund is listed on the NSX and MPS records its value at the trading price of 20c. The NTA is 72c. Management believe in the case of an asset realisation the actual value received will be much closer to 72c. There is no catalyst (that I am aware of) in place to close the NTA gap so don't get too excited. MPS owns $638k stock at 20c however it could be worth $2.3m if the value gap closes.
2. MPS has started buying back it's own stock. This is good news for two reasons: it means MPS is buying an asset worth 12.15c for much less thereby increasing the value of the remaining units. And in my opinion it just as importantly sends a solid signal to the market that the action plan outlined by management is being implemented and capital management is being managed prudently.
We are now seeing several catalysts in-play:
1. The NTA has increased from 11.66c (30 June) to 12.15c (31 October) or 4.2%. Life is so much easier when you buy at a massive discount and the underlying fundamentals of the business/property are getting better because we get the double uplift of a closing of the discount and an increasing underlying value. Compare this to classic value traps (I've been caught in my fair share) where the underlying value is not increasing and you just have to hope the discount to valuation closes in a reasonable period of time.
The other significant factor is that the vast majority of nasties in the portfolio have been cleaned out, so hopefully most of the potential negative news has been dealt with. The underlying property portfolio is comprised of both unlisted and listed stock. Both have their advantages and disadvantages. One of the disadvantages of the list portfolio is that some of the stocks are very illiquid: a decent pull back in the price of some of these will impact MPS' NTA.
Interestingly, this illiquidity may actually create upside in the future: the APN Regional Property Fund is listed on the NSX and MPS records its value at the trading price of 20c. The NTA is 72c. Management believe in the case of an asset realisation the actual value received will be much closer to 72c. There is no catalyst (that I am aware of) in place to close the NTA gap so don't get too excited. MPS owns $638k stock at 20c however it could be worth $2.3m if the value gap closes.
2. MPS has started buying back it's own stock. This is good news for two reasons: it means MPS is buying an asset worth 12.15c for much less thereby increasing the value of the remaining units. And in my opinion it just as importantly sends a solid signal to the market that the action plan outlined by management is being implemented and capital management is being managed prudently.
3. Distributions have been affirmed for the quarter ending 31 December. The amount of the distribution or payout policy has not been determined which was clearly a point of contention at the unit holder meeting on Wednesday. I too have been critical of this, however on reflection I'm not sure this is being a bit harsh; to be fair, AIMS inherited a lot of crap in the portfolio and some of the inherited underlying investments are not paying distributions or are in the process of being sold or improved. This means that MPS does not have superb cash-flow while it works through cleaning up the portfolio. Paying any distribution will be the first since 2008. I'll be happy with something.
4. Following the sale of the Rimcorp property, there is $13.2m cash on the balance sheet. Not bad considering the total market capitalisation of MPS is just under $39m. However it's not correct to exclude this in a Enterprise Value style calculation as anywhere from ~1$m to $6m will be spent on new securities in a St Kilda Road (Melbourne) property, cash will be used for further share buy-backs and possibly any property acquisitions.
5. Management will start road-showing MPS to brokers etc. This should get a bit of interest in the stock, which I have experienced first hand how this can work a treat to get the price moving.
These are the positives. There was a prickly debate at the unit holders meeting regarding fees, conflicts of interests, poor historic performance, the last capital raising, lack of clarity regarding the distribution policy, role of the board and other sore points. In my opinion some of these points were valid and some were not. For me, I am taking a more simple approach: I bought at a big discount to NTA and have been looking for catalysts to realise that value. As long as those catalysts continue to un-fold and the portfolio is managed sensibly, I will be happy.
Kristian
4. Following the sale of the Rimcorp property, there is $13.2m cash on the balance sheet. Not bad considering the total market capitalisation of MPS is just under $39m. However it's not correct to exclude this in a Enterprise Value style calculation as anywhere from ~1$m to $6m will be spent on new securities in a St Kilda Road (Melbourne) property, cash will be used for further share buy-backs and possibly any property acquisitions.
5. Management will start road-showing MPS to brokers etc. This should get a bit of interest in the stock, which I have experienced first hand how this can work a treat to get the price moving.
These are the positives. There was a prickly debate at the unit holders meeting regarding fees, conflicts of interests, poor historic performance, the last capital raising, lack of clarity regarding the distribution policy, role of the board and other sore points. In my opinion some of these points were valid and some were not. For me, I am taking a more simple approach: I bought at a big discount to NTA and have been looking for catalysts to realise that value. As long as those catalysts continue to un-fold and the portfolio is managed sensibly, I will be happy.
Kristian
Disclosure: own MPS
Please get in touch! I am always on the lookout for interesting stock ideas, with a particular emphasis on deep-value, growth companies run by outstanding management and arbitrage opportunities.
Please get in touch! I am always on the lookout for interesting stock ideas, with a particular emphasis on deep-value, growth companies run by outstanding management and arbitrage opportunities.
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ReplyDeleteKristian,
ReplyDeleteMy take on the recent review is that there is another $6m or so in redemptions coming in the next few months, Also worth noting that there is some distribution cash flow now including priority yield on the St Kilda Rd recapitalisation. So cash flow should be much improved. Buy back cash is also flowing very slowly. So lots of cash!
It is interesting that the ability of AIMS to add value in the future will depend upon their ability to invest APW funds in assets over which AIMS has some control - so maybe this particular perceived conflict (investing where they themselves get fees) may be a good thing.
Hi, you are correct - I am writing a post on this. I'm also hoping we should get some guidance on distributions shortly. I agree re the conflicts may be a good thing. There should also be a slight NTA uplift as a result of buying the units in the St Kilda road property at well less than NTA: as those units are un-listed, I expect they will be held on the books at NTA. I estimate this will give us an NTA uplift of ~1.8%.
ReplyDeleteKristian,
ReplyDeleteI agree on the St Kilda Rd NTA uplift. In immediate terms I calculated it as around $560K or about 0.11c per unit. This includes the downward impact on original holdings.
Alf
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ReplyDelete