Value Investing Discounts, Spinoffs, and Holding Companies |
- Discounts, Spinoffs, and Holding Companies
- Debenhams- undervalued or am I missing something?
- What industry/ companies do you think are Undervalued right now?
| Discounts, Spinoffs, and Holding Companies Posted: 07 Jul 2018 12:51 PM PDT Consider the following:
Do you know of any other cases where a company's stake in another firm is worth more than the company itself, net of cash? These discounts can be explained (somewhat) by other risks like country, regulatory, management ineptitude, taxes, etc. But sometimes they are such large intrinsic value discounts that it makes you wonder if they might be legitimately undervalued by the market. Thoughts? [link] [comments]  |
| Debenhams- undervalued or am I missing something? Posted: 07 Jul 2018 06:27 PM PDT The below is a summary of why I think Debenhams (a UK clothing retailer) is currently undervalued significantly. This is the first company I have seriously researched since starting to look into value investing over the last couple of months so there's a very real chance I've made mistakes in the process or have numbers wrong etc, and all of the below is just my view on things but I'm interested in getting a second opinion. Despite significant drops in earnings over the last 5 years, I believe that at the current share price of 15p, 3.8x forward PE(1) and <5x price to cash(2), the company is undervalued. Looking at book value, with a market cap at 0.2 x equity(2) the business still seems undervalued. However, intangible assets are around £1bn, of which £820m is goodwill- so with equity of £890m, if the business were to go bankrupt the shareholder would likely be left with nothing. The organisation has issued three profit warnings this financial year which it attributed to difficult trading circumstances surrounding the post-Brexit consumer confidence slump and extreme weather causing temporary store closures in early 2018. The CFO departed at the time of the third profit warning which could have also reduced confidence in the business. I don't believe the business will go into administration due to the short-term nature of the trading issues and the fact that they still have around £200m available in revolving credit on top of current debt, so I'm valuing them under the assumption they will continue trading. I have chosen to use PE as the basis for my valuation as earnings are the only metric we currently have a degree of certainty of prior to the end of year results (EOY = September 2018); however, price to cash using the half year report was <5x which is significantly lower than the 13.6x 5 year median value which I think provides a very large margin of safety. I would feel comfortable buying at around 15p per share with the confidence that the share price will reach at least 27p (based on lowest earnings estimates), either gradually over time or with the end of year results acting as a catalyst. Depending on the cash/equity situation at that time it could have an intrinsic value of around 40p (assuming same cash as half year point). At the point of the annual report, a decision would need to be made on the long-term longevity of the company as this analysis is based purely on the company being significantly undervalued today and not on its future growth potential (although I appreciated those two things are intrinsically linked). They have shown strong .com growth and the CEO, coming from Amazon, will approach decision making with a data mindset could ensure they succeed in the long-run, as could their 'social shopping' strategy of giving up store space to restaurants/gyms etc. (1) lowest end of the range from most recent trading update in June. (2) half year report. [link] [comments]  |
| What industry/ companies do you think are Undervalued right now? Posted: 07 Jul 2018 06:06 AM PDT I would say Oil is about to take off to it's zenith soon. [link] [comments]  |
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