Devine Ltd (DVN)

Devine is an Australian residential and commercial property developer. Times have been pretty tough in recent years, and the stock getting back down to multi-decade lows:

The stock took a belting in October last year when it announced a likely write-down in the carrying value of its stock by ~$70m. This was huge considering total inventory at June 30 was $390.5m. I really don't want to buy in situations where NTA is still declining (unless the discount is massive) and expose my portfolio to the 'cockroach effect' - the term used to describe how companies tend to make a lot more than one downgrade/upgrade in a row: where there is one there is more. A bit like turning the kitchen light on in a apartment I rented near Bondi in the middle of the night: the little pr$cks where everywhere. And so it has been with DVN. Just reading back through recent years annual reports and updates shows plenty of negativity. The following table from the CY2013 Annual Report (page 82) succinctly summarises the situation: 

Note the rapid decline in Net tangible assets per share at 31 December to $1.52. The share price is currently $0.93. DVN has typically operated in the mid-price house range, so the tough times of recent years are to be expected: apart from the recent growth spurt in prime spots such as Sydney and Melbourne, general property prices have yet to move significantly upward in Australia. I was just in London and the exact same trend is happening there: London has moved strongly, the rest of the country lagged. Even if we don't see a big upward movement in non-prime property prices, I suspect just some non-negativity or normalisation will allow DVN and others to start shaking the blues.

Recently the first upgrade in years recently came through - a very bullish upgrade to full year earnings forecast (CY12). Since the news announcement, the stock has rallied quite a bit and some of the negativity has been removed from the stock. The trick now is to determine whether the bad news is over for DVN as the potential upside from here is quite huge should more positive news emerge. And to do that I need to actually get in the field and see how things are really going before building my stake further.

Kristian 

Disclosure: own a small position in DVN.