Some companies can be ‘cheap’ for a very long time …….and sometimes companies can be ‘cheap’ forever
Bit like Re Remmers v Otara
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I would prefer it to go lower than 10c or even better get a call from the board asking if I will accept 100% of the equity for free and take it private.
I add the caveat that as 'long as it wasn't accompanied by a dramatic change in the intrinsic value of the business'.
Not sure whether you didn't read that bit, read it but didn't comprehend it or neither.
I painstakingly went through the math on this forum a while back.
For many companies NTA is totally meaningless (Google for one) for others it means a lot more. With companies like OCA the valuation is based more on what you could realise from an asset sale rather than the discounted value of future cash flows, which as you say is ok until that changes...
But then future cash flow estimates can change too.
You need to look at which suburbs have the greater proportion of owner-occupiers to determine “cheapness.”
“Cheapness” is a comparative concept. Remuera is cheaper for the people who live there. Otara is way too expensive, as fewer of the people of the neighbourhood can afford to buy their own homes there (and have the increased security of tenure and “belonging” that buys in NZ)
I think that the houses in less expensive suburbs in NZ tend to be investment destinations for wealthier people. Gentrifying suburbs are cheap for the wealthier and high paid folk moving in, but not for the long-established residents already there.
Seems to me that some posters accept the published NTAs of the retirement village as gospel truth.
What we know however that is the institutional market (especially overseas instos) prices in premiums or discounts to the NTAs, depending on their collective view of the property market and values are going.
Hence, the huge premiums to published NTAs during the boom years.
Now that the boom has turned to bust, hardly surprising that there are huge discounts to NTAs.
Why?
As one fundie put it to me a few months ago, they decided to get out of the sector as it was clear that the tide has gone out of the sector and the leverage from 'free equity' & debt that RVs enjoy to rising property values is now going into reverse.
Take OCA as a case in point - 30 Sept 2022:
Total land & buildings - $2.285b
Equity - $964m
'Free equity' - $889m (ror)
Debt - $493m
As can be seen, a 10% drop in property values will wipe 23.6% off NTA ($228m/$964m).
How about a 20% drop? 45.2% off NTA to 73.5c.
So market is pricing in an 18% drop in property values on OCA's sp of 79c vs NTA of $1.34 - realistic?
https://www.stuff.co.nz/life-style/h...124-nationally
Median house price to Nov 2022 - nationally down 12.4%
Auckland down 18.4% (some suburbs down 24.8%)
Wellington down 17.4% (some suburbs down 26.6%).
Leverage is a wonderful thing on the way up - it is nasty and un-nerving on the way down. Make sure you have the stomach for it if you ever use leverage or play leverage!
looks poised to tumble to new lows :scared: