CapitalandInvest will begin trading on Monday, 20th of September. It should be introduced at around 1 p/book, or $2.82 per share according to Capitaland’s documents.
The question that on everyone’s mind now is: what’s its market worth?
The value proposition
Capitaland strongly implies it’s worth more than this “introductory price” at book value. To support their argument, they’re showing that pure listed property manager trade at higher P/E multiples and above book value as compared to property developers which typically trade lower.
In their basket of manager, they picked Charter Hall, Goodman, Lendlease and ESR Cayman. It’s fair, but they omitted some which do not support their view. The best example is Cromwell Property Group, which trades under book value and with P/E ratio under 10.
For their developers, they included CityDev and Frasers Property. These two alone would strongly weight down on the average. CityDev as it struggles to get out of their China blunder and Frasers as they face very strong headwinds to their hospitality businesses.
Lastly, for REIMS and Developers they did not pick the same companies between their p/nav and Forward P/E charts. After double checking though there is nothing nefarious here. Companies that they did not include into one graph or another would have supported their thesis either way so it just comes off as odd.
For P/NAV, If CLI trades like their counterparts the implied fair value is 2.82 * 2.9 = $8.18.
Realistically though, CLI isn’t a REIT and isn’t a property developer with heavy assets so price to book is probably not the best way to evaluate its worth. CLI is likely to be better evaluated with its price to earnings ratio.
For P/E, it’s a little bit trickier because the company has never existed yet.
Capitaland did provide numbers though:
In 2019, EPS was 54.4 cents, -19.9 cents in 2020 and 6.8 cents in 1Q2021. A simple linear calculation would give you an estimate of 27.2cents for 2021.
If CLI trades at 20 p/e, fair value is 0.272* 20 = $5.44.
If CLI recovers to 2019 levels, fair value is 0.544 * 20 = $10.88!
My point of view
No matter how you look at it, the “unlock value” of this operation seems to be there and CLI seems to be incredible value. But there are two words of caution:
1. Capitaland closed at $4.
Considering CICT closed at $2, this implies that market priced CLI at $4 – $0.951 (the cash consideration) – 0.155 * 2 (the CICT shares as part of the deal) = $2.74.
That’s right, market has decided that CLI isn’t even worse its book value on closure.
2. Examples given are not comparable
To derive its value thesis, Capitaland has used REIMs listed in Hong Kong and Australia. There is no apple-to-apple comparison simply because there are no other listed REIM on the SGX. There is a good proxy to ARA through Straits Trading but they trade below book value and under 10 p/e.
As for Mapletree Investments, it’s a private company. I believe if they could raise billions through an IPO they would do so, but Mapletree’s management has decided that isn’t worth it for now. Would it be because they’re afraid of a low valuation?
I believe the market value of CLI will largely depend on their dividend policy.
THIS IS NOT INVESMENT ADVICE. MY PERSONAL OPINION ONLY. I AM NOT A FINANCIAL ADVISOR. DO YOUR DUE DILIGENCE.
Once again, this article is a guest post and was originally posted on tantan88‘s profile on InvestingNote.
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