Mountview Estates 10600p
Stated NAV per share 83300p
NAV / Share based on Allsops Methodology 15700p
Mountview Estates produced H1 numbers for HY ending Sept. As a reminder Mountviewowns and acquires tenanted residential property throughout the United Kingdom and sells such property when it becomes vacant. The Company's portfolio of categories of properties includes regulated tenanted (residential) units, assured tenancy units, ground rent units and life tenancy units.
Turnover and profits are down 20% and 15% respectively as changes to stamp duty on Buy to Let, which came into force on the 1st April 2016, forward loaded sales into the second half of the last financial year ended March 2016 and away from H1 17. Turnover and Gross profits are important indicators but are not the be all and end all as I am more interested in the Net Asset Value per share. Interestingly the gross profit margin rose to a new high of 71%. 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 71% compared to a 7 year average of around 61%.
When I look at the Group's stated NAV of £83 / share I want to adjust for the fact the Trading Properties are held at the lower of historic cost / net realisable value. So I Assume that future sales will be at a gross margin of 65%. Obviously this assumes house prices continue to rise and that tax rates remain at 20%. So if you dont agree, then look away now. If you did say that the trading properties had a gross margin of 65% that would imply their open market value (assuming they are vacant which is a big if) is 2.85x (1/COGs margin or 1/35%= 2.85). I think this is too strong a…
