Thursday, August 16, 2007

Jardine Strategic - A Margin of Safety?

If you have read James Clavells books like TaiPan then you will love the Jardine group.

For the background see
http://findarticles.com/p/articles/mi_qn4158/is_20010620/ai_n14393712/pg_1
and
http://en.wikipedia.org/wiki/Jardine_Matheson_Holdings

I own Jardine strategic holdings, bought for its discount to Net Asset Value (NAV as reported in the balance sheet). It had turned up in a ROE/PTB screen I mentioned in an earlier post.

Some recent news.
Jardine Matheson the other jardine company said
"shareholders in Jardine Strategic are being invited to tender Jardine Strategic shares in the range of US$14.00 to US$14.50 per share representing a premium of up to 9.5 per cent. over the average closing price of the shares"

Source http://202.66.146.82/listco/sg/jm/press/p070815.pdf

and

"Net asset value per share up 27% to US$24.69"

Source http://202.66.146.82/listco/sg/jsh/interim/2007/int.pdf

So put simply the offer is at USD 14.5 - a big discount to the USD 24
NAV of Jardine strategic. An unacceptable offer, I am not handing in my shares. But maybe this is simply an ploy by the owners to prop up the price of Jardine strategic to prevent a raider from getting a big stake. The price has certainly risen to the offer price though I doubt anyone investing from the business perspective will sell at the offer price as it is below NAV.

So what you have is company growing in Asia available at a discount to NAV and it will not fall much more because of the buyback offer at 14-14.5USD - a margin of saftey. Right now it is trading around 13.5USD - 1$ less than the top of the offer range.

4 comments:

Dennis Mangan said...

I'm very interested in this. The question arises as to why the stock trades at such a discount to NAV. Any ideas would be appreciated.

returntomean said...

Hi dennis,

Holding companies usually trade at a discount to NAV.

Why? Well here is a link to a paper that discusses the reasons.

http://econpapers.repec.org/paper/antwpaper/2004007.htm

Jardine strategic is a holding of mine. You can join the longtermequitysingapore group where we have some discussions on the Jardines and research reports in the files section.

http://finance.groups.yahoo.com/group/singaporelongtermequity/

There will be longtermequityUK soon..

Dennis Mangan said...

Thanks for the reply. Yes, holding companies often do trade at a discount, but Jardine seems to be at a much wider discount than some others. Investor AB is a Swedish company (which I own) that trades at a discount to NAV, but the discount isn't as severe as Jardine. BTW, both Investor AB and Jardine Matheson Holdings are favorites of Martin Whitman's Third Avenue Value.

I discovered your blog (via a comment at James Montier's) just the other day and look forward to more of it.

returntomean said...

My own calculations as published on the longtermequitysingapore group using prices at the time of annual report availability shows a large historical discount.

p/NAV year
0.61 sep2007 price 15.2 USD
0.55 when I bought around 13.5
0.71 2006
0.70 2005
0.76 2004
0.58 2003
0.44 2002
0.47 2001

The singapore market usually assigns lower valuations to companies that trade here compared to say a similar stock on NYSE.
I feel that this is the most important factor, some markets always discount some stocks more.

A perfect example that different markets price differently is the same stock trading at two valuation on two exchanges - WIT (NYSE ADR and underlying on BSE).

There does not seem to be any buzz surrounding this stock on messageboards. I know of no local broker that covers it.

I discovered the stock by a mechanical screen.