It always amazes me how many Listed Investment Companies trade at steep discounts to their net tangible assets. At the end of August 2013 there were 7 companies trading at a discount of greater than 20% to after tax net tangible assets. They were:
- Orion Equities Limited (ASX:OEQ) - 60% discount
- Sunvest Corporation Limited (ASX:SVS) - 58% discount
- Bentley Capital Limited (ASX:BEL) - 39% discount
- AMP Capital China Growth (ASX:AGF) - 24% discount
- Ozgrowth Limited (ASX:OZG) - 24% discount
- Katana Capital (ASX:KAT) - 23% discount
- Hastings High Yield Fund (ASX:HHY) - 23% discount
While I've found LIC's to be a relatively profitable place to prospect for bargains, it can be frustrating how long the discount to NTA can persist.
I'll let you do your own research into the companies above.
This week's reading is a booklet published by the renowned value investors at Tweedy Browne. It's called What Has Worked In Investing (you can find links to more publications from Tweedy Browne on the Investment Resources page).
You will need to set aside some time to read it though. The booklet runs to a substantial 49 pages, however I think you find it time well spent. The document provides a some great ideas on where value might be hiding in the stock market.
Interesting Investment Ideas
Each week I rummage through the basement of the ASX in the hope of finding some hidden treasure. Mostly the shares to be found here have ended up in the basement for good reason and should be left undisturbed. But occasionally there is treasure to be found among the trash.
Please don't take any of the stocks listed here as recommendations. You should always do your own research and obtain independent advice.
I know I've already mentioned Hastings High Yield Fund (ASX:HHY) in the Listed Investment Companies at the beginning of this article. However HHY had already popped up onto my radar for other reasons. First, it touched a 52 week low this week. Second, as I've already mentioned, it's trading at a discount to its net tangible assets. Third - it looks like the company is being wound up. This was the kicker for me. It provides a timeline for when the value embedded in the shares will be realized. I still want to do some more research though. I need to determine how much investors are realistically likely to receive when the company is actually wound up.
Real Estate Capital Partners USA Property Trust (ASX:RCU) is also trading at a substantial discount to net tangible assets. I'm still trying to wrap my head around this one, but here are some of the more interesting facts. A debt restructure announced on 30 August this year resulted in NTA increasing from 7 cent to 68 cents per share. Then this week the company issued another 1,601,940 shares at a price of 36.5 cents to "professional investors" (this was at a discount of 15% to the prevailing market price). The NTA per share will have decreased now due to the dilutive nature of the share placement (and just to rub salt into the wound, it looks like there will be no shares offered to existing shareholders). So, with issued shares having increased by about 15%, RCU might still be worth further investigation
Listed Investment Companies or Exchange Traded Funds?
While researching the LIC's listed at the beginning of this article, I came across another interesting fact.
As at the end of August this year, all ETFs listed on the Australian Stock Exchange were only capitized at about $8.8 billion. This compares to LIC's which are worth a total of $21.4 billion.
And eclipsing both of these categories was Real Estate Investment Trusts (REITs) capitalized at almost $93 billion.
That's it for this week. Happy investing!
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