Abbey plc
There are few occupations nobler than building somebody's home. Abbey plc is an AIM listed builder and developer. Its principal
activities also include plant hire and property rentals. It operates in the
UK, Ireland and the Czech Republic. The vast majority of activity – 82% by
revenue is generated from the UK.
The equity sells for EUR 278m. This is below the net current
asset value of the company (a general proxy for liquidation value), which is
stated as EUR 331m as on October 31st, 2019.
The key figure in the valuation in this instance is the inventory balance at
EUR 273m – this appears to be valued conservatively at the lower of cost or net
realizable value (market value less costs to complete and sell).
The company generated EBITDA (a proxy for cash earnings) of EUR
60m on revenues of EUR 230m. It converted these earnings to operating cash
flows of EUR 50m, which is fairly efficient for a property developer.
Debt is negligible and the company held a substantial net cash balance of EUR 107m.
This translates to a current market value of less than three times ebitda (net of cash).
It has paid dividends of around EUR 4m every year with a bump
up to over EUR 25m last year. Buybacks of stock were infrequent and
insignificant in prior years.
However, the company has been continuously buying back stock
recently above the current market price of EUR 13. Notably, the holding company
“Gallagher Holdings” purchased 2.1m shares at the equivalent of EUR 18.49 (GBP
15.75) on January 16th, 2020. It holds over 93% of the stock, which
implies a very low public shareholding.
It’s important to note that insiders sell stock for various
reasons but they buy stock for only one reason – because the stock is cheap.
Such a small public float, however, introduces the risk of a
‘take-private’ transaction, which tramples on minority shareholders.
Further, Covid-19 has dampened trading activity
significantly and cash flows will be stressed. Consequently, management will
not pay the declared interim dividend. This appears to be unwarranted given the substantial net cash balance - in any case, it provides sufficient ballast to withstand such adverse conditions.
The shares appear to be under-priced and represents good value for money at the current market price.