Opportunities like this haven't existed since Warren Buffett was a boy. Home Consortium Ltd (ASX: HMC) is an exciting real estate management company with a market capitalisation of $544.26 million at the time of writing. This is 25% cheaper than the company's asset value (as at 31 December 2019).
Buying shares in undervalued companies is the investing strategy made famous by Benjamin Graham, considered 'the father of value investing'. It's also how Warren Buffett first made his fortune.
A brilliant idea well executed
Home Consortium was the largest IPO in 2019 and listed at $3.75. By October it gained momentum and flattened out to trade at an average price of $3.86 between 29 October 2019 and 6 March 2020.
At the time of writing, the Home Consortium share price sits at $2.59. It withstood the first couple of weeks of selling off but could not make it through the past fortnight. It went ex-dividend on 4 March, paying an interim dividend of $0.045 per share. Home Consortium shares fell shortly thereafter, dropping by more than 30% across the past 2 weeks.
Home Consortium had the novel idea of using all of the empty real estate in the wake of the disastrous Master's experiment by Woolworths Group Ltd (ASX: WOW).
The company now has 30 centres across 5 states. Many of these centres have national supermarkets as anchor tenants, supplemented by some of Australia's leading retail brands.
There is nothing in this company that indicates it should be selling at less than asset value.
Maiden financial performance
During its maiden earnings announcement, Home Consortium impressed shareholders.
It announced 97% of its gross lettable area had been let to blue chip tenants. Interestingly, it has 21% of tenants in the defensive health and wellness areas. This is going to prove very useful in the weeks and months to come.
The company reported it was 10% ahead of guidance on pro-forma freehold funds from operations. Surprisingly, it also announced a JV initiative to develop childcare centres in its portfolio, which is an initiative Home Consortium plans to later tie up in a REIT. Perhaps most telling is the 21% increase in foot traffic for previous comparable period.
With clientele including supermarkets, child care and healthcare, Home Consortium is well positioned to ride out the looming recession and retain a positive financial position.
Foolish takeaway
There is no doubt in my mind that Home Consortium has just been innocently trampled in the investor rush for the exits. There has been no negative news or announcements from the company and yesterday one of their non-executive directors purchased a reasonably sized package of additional shares on market.
This is yet another exciting opportunity thrown up by the market at this time. In 33 years of investing, I have seen plenty of bad companies selling at less than asset value. But I cannot recall a time when I saw it with a company with this much promise.
In my opinion, this is a rare situation and one that deserves space on your watch list at the very least.
