Daily Stock Market Report (Mon 17 Feb 2025) - MONY, SPR, FRP, AGR, HVO, WIL, EBQ, TEK

My natural assumption is that if KKR wants to buy you, their offer price, somehow, is far too low. These are very savvy folk and there will be something in your company that is far too undervalued. Assura (LON:AGR) has always looked unusual, with the NHS (i.e. us taxpayers) backing the payment of rent making the risks at UK bond level compared to the market rate that they charge to the doctors. For companies such as KKR, which may want to up the gearing against a reliable income stream, this is catnip.

Thanks Graham for the detailed write up! Nice to see you also remain positive on MONY (LON:MONY) . And ditto even Mr Market seems pleased… for once….

Hi Tim do you prefer MONY (LON:MONY) over Pets at Home (LON:PETS) ?

Regards

Andy

Several REITS have already fallen to bids or amalgamations and it’s very likely more will too. The obvious candidates on very wide discounts get full coverage on the Investment Trust threads, but include Supermarket Income REIT (LON:SUPR) on 22% discount Schroder European Real Estate Investment Trust (LON:SERE) on 35% discount and Warehouse Reit (LON:WHR) on 35% discount. 

I’m not convinced by Graham’s comments about bidders paying the full NAV though. EBOX (on a near 40% discount pre bid) which I held fell to a bid well below NAV and around 10% discount from memory. After all what’s in it for the bidder if they pay that very full price? 

The good news is that Commercial REITS are past the worst, with Schroder Real Estate Investment Trust (LON:SREI) the latest to report a small NAV rise today. Discounts are still wide though, and dividends often around 8% or even a bit higher. Share prices are off the bottom and will be helped further by more bids (if they come) and falling interest rates (if they happen) and by more REITS confirming that the sector has bottomed now while reporting increases in NAV. It’s certainly a sector well worth checking out while the share prices are still subdued and discounts often wide. 

Thanks for the section on Springfield Properties (LON:SPR) today, Roland. It's been towards the top of my shortlist for a few months now and I was beginning to kick myself for not dipping my toe in at 90p. But I'm also lukewarm on this deal upon your initial review and now don't feel so bad about missing the 20% move.

Hi Sparker - You may well have a point about Glasgow/Edinburgh but there is also potential in the areas they have mentioned - Cromarty Firth and Inverness which is in their back yard so to speak and where I suspect they have an advantage with far less competition as against the Central Belt 

Hi TP

Hi Tim do you prefer MONY (LON:MONY) over Pets at Home (LON:PETS) ?

I hold both in about the same amounts. Overall I don't think MONY is going to shoot any lights out but it does seem to be unjustifably cheap (although so is half the UKmarket).

PETS, on the other hand, has been marked down for well understood reasons - the CMA enquiry, employer NI constribution rises and a slowdown in consumer spending. It's hard to argue that the price is very wrong. On the other hand the opportunity for a re-rating is obvious and, in particular, the slowdown is probably temporary both in terms of current consumer behaviour and the pandemic era cohort of pets aging.

So - short term I'd prefer MONY, but longer term PETS. I'll likely top-up the former when I get some cash and if I can convince myself the CMA investigation is unlikely to impact the latter I'd probably do the same there - but I've always found regulatory involvement takes longer to resolve and is more painful than you'd expect.

timarr

Thanks Tim both come up on my quality garp screen but my interest is always piqued when I see yourself or one of the other top table posters commenting on some of the stocks the screen throws up.

Good to see you posting here more regularly especially as sadly it seems a lot of other good posters seem to have departed with Paul S.

Regards

Andy

Assura (LON:AGR) - I hold and have just doubled my position at 43.5p, which is 1.5p less than I had paid previously despite the bid. 

Either a bid at 50p coming or KKR will walk away and you are left with a 9% yielding share, with the warm knowledge that KKR were quite happy to pay 48p! I think the board are correct to hold out for a bit more / carry on as is.  That's the second bid recently for quality discounted asset plays. BBGI being the first. 

There is definitely some value plays out there that are attracting attention. I would not be surprised to see a large renewables bid next.

Here's the full article:

https://archive.ph/NIKBs

Absolutely, Aislabie, there is no good reason for a Board to agree to give a company to PE at a discounted price. Even if it is KKR's 4th bid, we can assume that the 1st bid was just a test, to see how the Board would react and to open lines of communication. The 4th bid might be the actual bid.

Springfield Properties (LON:SPR) I shall disagree with you if I may sparkler

The land sold today in the Central Belt was sold at 130% of book value, so their definition of ‘highly profitable” sounds accurate to me. It’s been apparent to the company and their shareholders for some time that they needed to reduce their debt and this sale achieves it in one fair swoop.

Re geography, any of the larger house builders can (& do) build in areas like the central belt which increases the competition for labour & resources. Springfield already have considerable infrastructure in the north of Scotland as they originated in Moray & still have their Head Office there. A decent proportion of their remaining land bank is also in the north. This gives them a decent ‘standing start’ with the new areas of opportunity they’ve identified, Green Infrastructure development. 

To illustrate the scale of this I found the following, “Scottish and Southern Electricity Networks is investing billions upgrading the electricity network in the region and the project will require some 5,000 workers at its peak in 2027. Meanwhile, Cromarty Firth Green Freeport is expected to create more than 10,000 jobs locally with new investment in excess of £3 billion”. Workers need houses to live in.

Having held Springfield since IPO I suspect that their plans to develop in the north are already well advanced (and that we may see additional land purchases in the area too going forward). I shall continue to watch closely with interest to see if todays deal and renewed focus in the north of Scotland is the right one 

Graham.

Have you taken in to account that Assura (LON:AGR) is a real estate investment Trust where NAV is a crucial factor, and not a Company where NAV isn’t? 

Your  comments about “no good reason for a Board to agree to give a company to PE at a discounted price,” would  make total sense for a share (e.g a housebuilder trading at less than NAV) but doesn’t for an Investment Trust.

See topvest’s post to see that there  might be another 2p or so if KKR are prepared to go that high. Note that other successful bids for Real Estate Investment Trusts have been successful at a small discount to NAV. e.g the EBOX example in my post earlier today. 

Can you explain please why you think Assura (LON:AGR) is an exception and deserves to be sold for more than it is worth, and what would be in it for any bidder for any REIT prepared to pay more than NAV? 

Ken, yes I'm valuing it according to NAV. Assura's tenants seem higher-quality than the average REIT's tenants, and the NAV being used is the Sep 2024 calculation which will soon be superseded by the March 2025 calculation. If Assura's shareholders want to let it go that's up to them, but I wouldn't be feeling charitable towards the likes of KKR - I'd want them to pay as close to full price as possible. That may only be another 2p but I think they should pay it! Just my two pence. All the best (and thanks for the comments). G

No problem, AstonGirl. Healthy debate is what we want on this forum. You clearly know a fair bit about the history of Springfield Properties (LON:SPR) and the company's geographic strengths. I would, however, take issue with a little of what you say. Yes it is encouraging if the land bank is worth more than is shown in the books, but housebuilders make most of their money from building on that land and so when it is sold undeveloped the company is clearly not maximising returns. If this were not the case Barratt Redrow (LON:BTRW) wouldn't see value in buying it!

It is probably a sensible move for Springfield Properties (LON:SPR) to reduce debt that got too high during covid, so I am not criticising this decision per se, just the attempt to spin it as profits upgrade when underlying trading has not improved. Yes?   

Graham, Would you like to expand on ' Could there be a way to arbitrage this?' re your comments on  Tekcapital today? 

The level of investment into green energy infrastructure around Inverness is set to be huge.  Billions are earmarked to build and connect wind turbines to massive new substations.

Add to this the Freeport’s, both are forecasted to create thousands of jobs and increase the population (12-15k).

Inverness has a population c.46k, Nairn and Forress c.10k each, so taken into context the equivalent of a new town may be required.  

The area is served by a rail line (just takes ages to travel along it) and has an airport, both could be scaled up to serve larger populations.

This is Springfield Properties (LON:SPR) back yard, where they will likely have a competitive advantage given their land bank and  local connections .  They would be well positioned to have a very strong few years on the back of this.

Selling off land to remove debt may prove to be a shrewd move Would being debt free reduce any future working capital costs?

Hi, they say their portfolio is worth ~ £50m, their market cap is £22m. Their portfolio is almost entirely publicly listed, and will be fully listed soon. The arb would be to go long TEK and short the shares in their portfolio in the correct sizes. I don't know if it would work or not, but it's an idea. G

Sign me up. 

Haha, it’s a good story but how often have we all been stung by one of those?

Still on the watch list for me for now to see how this starts to play out.