Executives, for the most part, shy away from commenting on share price movements. So it’s rather refreshing, and perhaps reassuring, that Hosken Consolidated Investments (HCI) CEO Johnny Copelyn takes the trouble to address the marked decline in the company’s share price in the just-released annual report.
Copelyn has always seemed reticent on matters that some shareholders (myself included) fixate on, such as discounts to net asset value (NAV) and realistic reflections of intrinsic NAV. But, as the annual report points out, HCI’s share price has not had such a decline since the 2008 financial crisis.
Copelyn argues that HCI’s results were not nearly as disappointing as its share performance, noting that "our board’s considered view is that over the past couple of years the share performance of the company has significantly underperformed its underlying businesses."
Fortunately HCI has bought back its own underperforming shares, as well as those of subsidiaries such as Tsogo Sun and, more recently, Deneb.
Taken over the longer term, HCI has managed to whittle down its shares in issue rather dramatically, from 431m to just 89m shares. If Copelyn feels HCI’s shares are undervalued, some punters might argue the predicament is partly of the company’s own making.
HCI could do more to help investors grasp the real value of the portfolio. With more than three-quarters of the portfolio value residing in listed counters, surely HCI could follow PSG’s example of offering daily updates of the sum-of-the-parts valuation? The annual report shows a carrying NAV at the end of August at R159/share — probably a highly conservative measure. Then again, having a pervading murkiness over HCI’s "realistic" value does suit investors who may relish accumulating stock that heavily discounts a cash-generative portfolio.
In that regard, I am again alerting readers to a potential X-factor in the form of HCI’s burgeoning property portfolio. The annual report shows the value of HCI’s property assets increased 6.1% to about R1.17bn, with revenue increasing by the same margin to R137m. Revenue from external tenants represented a chunky 71% of the total revenue.
Developments are moving apace, with HCI completing its first inner-city housing conversion at Rand Daily Mail House. Copelyn indicated the conversion was completed in time, on budget and was 100% let. The first phase of the Monte Circle office park co-development was also completed, and the Olympus Village Mall, a shopping centre in Tshwane, as well as the Blue Hills Shopping Centre in Midrand opened their doors.
Older developments look promising too. Even the Kalahari Village Mall in Upington has experienced additional demand, warranting planning for a second phase. The retail and office component of the Point Mall in Sea Point is fully let, and Protea Place in Claremont has no vacancies. The Lynnridge Mall — a 24,000m² mixed-use retail and office complex replete with an adjacent Cycle Lab megastore — will be completed this financial year, as will the Sydney Road industrial development in Durban.
Copelyn says the development pipeline remains solid. But if more projects are brought to book, can HCI — which has a hefty debt load —afford to fund them? Could there be plans to separately list HCI Properties, thereby raising fresh capital for more real estate thrusts?