Mountview Estates (MTVW)
Stated NAV share £86

VegPatch NAV / share £200 / share

In a very bullish market Mountview is one of the most undervalued stocks I know or own.

Today's results show turnover is down a tiny bit, but this is against a prior period when George Osborne (remember him?!) as Chancellor increased stamp duty thus inflating sales as people rushed to purchase houses at the lower level of stamp. Gross margins were flat at 64.5%. EPS Was down 7% at 929p and DPS flat at 300p.

Understanding the balance sheet is key
Remember Mountview has funny accounting policies which means it keeps its properties on the books as Trading Assets rather than Investment properties. As the units are held as Trading Assets they are recorded on the balance sheet at the lower of historic cost (ie what it paid for them) or net realisable value. They are NOT revalued annually to reflect open market value like most property companies. So when the properties are sold, often 15 years after being acquired, the house price inflation is captured in the sales price but not the COGS, which have remained at historic cost. Therefore Gross Margin rises after periods of house price inflation. In this half year, GMs have reached 64.5% compared to a 7 year average of around 61%.

The last open market revaluation of the Trading estate by Allsops was done in Sept 2014 when 1) house prices were lower and 2) gross margins were lower. I say this because the relationship of the trading estate open market value of £666 vs book value of £318, resulted in a ratio of 2.1x. This ratio I feel should prove conservative in a sale of the business. But based on this ratio I estimate the NAV per share to be around £184 vs a share price of £112, a discount of 40%.

On my more realistic version where i extrapolate the 64.5% gross margin for the entire trading estate then deduct the tax, assuming the units are all sold, gives an NAV of £215/share, a 48% discount.

My VegPatch NAV Splits  the difference and gives a NAV of £200 and a 44% discount.

Some day i think the Pears family, who own over 5% of the company, buys Mountview from the Sinclairs. I don't know when, and to be clear it could be…

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