While some companies with exposure to residential housing have enjoyed investor support over the past 12 months, there are still a number of property companies languishing well below their stated book values despite the strong run up in land and house prices.
Here are three property plays which stand out for being "cheap" on the metric of price to net tangible assets (NTA).
1) AVJENNINGS Ltd (ASX: AVJ) reported a significantly improved second-half result for financial year 2013. While the company made a loss in the first half, AV Jennings produced a $3.8 million profit in the second half. The stated NTA as at 30 June 2013 was 76 cents per share (cps). With the shares currently trading at 58 cps this implies a discount of 23.7%. It appears funds associated with wealth manager IOOF Holdings Ltd (ASX: IFL) have been tempted by the price, with the manager recently increasing its position from 5.7% to 6.8%.
2) Devine Limited (ASX: DVN) was forced in October to lower the market's expectations for earnings for the half year to 31 December 2013, with the company guiding the market towards an underlying loss of $15 million, plus expectations of an impairment charge of up to $70 million. For the full 2014 financial year however, Devine expects to deliver an underlying pre-tax profit between $7 million and $10 million. Based on stated NTA the stock currently trades at a 56% discount, but investors should await the release of the half-yearly results as this discount will decline once impairment charges are brought to account.
3) Aspen Group Limited (ASX: APZ) has been on a path to simplify and focus its business which has involved the sale of non-core assets. At the AGM, management gave an update on trading for the first quarter which stated that permanent staff had been reduced by 26% over the quarter and that a distribution of 7.5 cps for the first half would be targeted (since confirmed). After a 1-for-10 consolidation of shares on issue the stated NTA of Aspen is $2.20. With the share price currently at $1.42 this implies a 35% discount.
Foolish takeaway
As investors it is always important to acknowledge that while the market may not be perfectly efficient, on balance it generally gets it right. Stocks that are trading below their NTA are doing so for a reason – rarely because they have simply been overlooked or missed by other investors. While occasionally the market will be wrong and a discount to NTA will close by the share price moving higher, on other occasions the market will correctly forecast a declining value and the NTA will subsequently fall towards the share price.
