MOUNTVIEW ESTATES: Lowly 50% FY Gross Margin Despite Record £395k Average Sales Price Signals Property Purchases Realising Limited Gains And Leaves £100 Shares Trading At NAV 

28 October 2023
By Maynard Paton

FY 2023 results summary for Mountview Estates (MTVW):

• A lacklustre FY performance, with profit down 2% to the lowest level for ten years despite average property sales (excluding ground rents) rising 14% to a record £395k.

• Property sales achieving a 50% gross margin, the worst for 14 years, suggest properties purchased following a 2014 valuation have realised very limited premiums on disposal.   

• Debt remains under control at 12% of the property estate, although £56m was spent on new properties — the largest amount since FY 2008 — despite management talk of ongoing “difficult economic circumstances“.

• Protest votes against the board’s composition and remuneration continue to increase, with property investor David Pears among the unhappy shareholders asking questions at the latest AGM.

• The £100 shares trade at net asset value (NAV), which in theory prices in no future property gains, and offers a 5% income, the highest for decades aside from the banking crash. I continue to hold.

Contents

• News links, share data and disclosure
• Why I own MTVW
• Results summary
• Revenue, profit, dividend and net asset value
• Trading properties: disposals and acquisitions
• Trading properties: gross margin and rental income
• Trading properties: properties valued by Allsop
• Trading properties: properties not valued by Allsop
• Financials
• Protest votes, David Pears and executive pay
• Valuation

News links, share data and disclosure

• Annual results for the twelve months to 31 March 2023 published 15 June 2023
• AGM attendance 09 August 2023

Share price: £100
Share count: 3,899,014
Market capitalisation: £390m

Disclosure: Maynard owns shares in Mountview Estates. This blog post contains SharePad affiliate links.

Why I own MTVW

• Buys, holds and sells regulated-tenancy (and similar) properties and boasts an illustrious, 40-year-plus history of net asset value and dividend advances.

• Board led by veteran family management that continues to boast an aggregate 50%/£195m shareholding.  

• Properties are carried at cost, and when eventually sold at their ‘reversionary’ values may generate total proceeds significantly in excess of the recent market cap.

Further reading: My MTVW Buy report | All my MTVW posts | MTVW website

Results summary

Revenue, profit, dividend and net asset value

• After the preceding H1 expressed caution about “economic storms“…

“We are all aware that difficult times lie ahead but the financial strength of this Company should enable us to weather the economic storms that lie ahead better than most.” 
…
“We all know that times are going to be tough, but I believe that this Company is better placed than most to survive the difficulties and indeed prosper. “

• …this FY was perhaps never going to show a wonderful H2.

• Although H2 revenue gained 3% to £36.4m…

• …H2 operating profit dived 22% to £15.5m, the lowest H2 profit since H2 2012 (£12.0m):

• The H2 performance meant FY 2023 revenue advanced 11% to £73.6m, the highest since FY 2017 (£78.2m)…

•  …but FY 2023 operating profit slipped 2% to £34.0m, the lowest since FY 2013 (£30.0m).

• Revenue was split 74%/26% between property sales and rental income, which matched the preceding ten-year average (73%/27%): 

• Note that MTVW typically sells its regulated-tenancy properties when the tenancy ends — which almost always occurs when the tenant dies. 

• The mix of properties becoming available for sale — and the total proceeds and profit MTVW generates — can therefore vary significantly from one set of results to the next (see Trading properties: disposals and acquisitions and Trading properties: gross margin and rental income).

• MTVW claimed “difficult economic circumstances” would continue for some time…

“Difficult economic circumstances may be with us for some years but I am confident that Mountview will remain profitable and that the Company will remain a sound investment for all its stakeholders.”

• …and even suggested shareholders ought to be grateful for the business staying afloat:

“We are now living in the circumstances of double digit inflation and rising interest rates which give us very different problems to those experienced before and indeed during the Covid pandemic. At a time when companies are failing to pay dividends and even ceasing to trade, mere survival must be considered to be a success.“

• MTVW hoped its “lower priced” property portfolio may not be too damaged by any downward housing market:

“We are fortunate that the properties that Mountview brings to auction are typically in high demand as they offer a lower priced entry to the housing market or, if sold to developers, provide opportunity for ‘developer profit’.

We are hopeful therefore that Mountview will continue to be well placed to weather any continued down turn in the general housing market, should it occur, through both continuing sales of attractive properties and also with the opportunity to purchase potentially discounted replacement properties both through auction and private tender.”

• Most of MTVW’s properties are located within London and south-east England, and 696 (87%) of the 800 properties MTVW sold between FYs 2019 and 2023 achieved less than £500k:

• The payment of the 250p per share special dividend announced within the preceding H1 caused net asset value (NAV) per share to decline for the second consecutive FY:

• NAV ended this FY at £391m, or £100.21 per share, versus £393m, or £100.92 per share, one year earlier and £395m, or £101.27 per share, two years earlier.

• The 250p per share H1 special dividend cost almost £10m, and were it not paid would have lifted NAV to £400m or £102.71 per share.

• Were the 275p per share H1 special dividend of FY 2022 also not paid, NAV would be £411m or £105.46 per share.

• MTVW’s NAV per share growth has slowed over time. 

• NAV per share has compounded at:
  • 2% during the five years to FY 2023;
  • 5% during the ten years to FY 2023;
  • 5% during the 15 years to FY 2023, and;
  • 7% during the 20 years to FY 2023.

• The final dividend was kept at 250p per share to leave the full-year ordinary payout 25p higher at 500p per share: 

• Companies House shows the ordinary dividend has never been cut since at least 1985 — after which the payout has risen 111-fold:

Trading properties: disposals and acquisitions

• The 184 properties sold during this FY compared to 135 during the comparable FY, with 74 sold during H1 and 110 sold during H2:

• The 184 sold was the largest number of disposals since FY 2016 (209):

• The average sale price of £295k for this FY was skewed by the disposal of 50 ground rents:

“During the financial year we achieved sales of £54.2 million (2022: £46.8 million), demonstrating the liquidity of the Portfolio. The average sales price achieved, excluding sales of ground rent, was £395k (2022: £347k).” 

• Ground rents tend to be low-value investments. The 2023 annual report indicates MTVW’s ground rents are carried at an average cost of £6k each:

• The 50 ground rents were sold for approximately £1.3m, or £26k each.

• Management’s AGM remarks noted the Leasehold Reform Act had prompted the ground-rent disposals and admitted other ground rents would be analysed for potential sale, too. 

• MTVW claimed the average sale price excluding ground rents was £395k, up a useful 14% on the comparable FY’s £347k.

• The £395k figure may have itself been skewed by MTVW selling five properties for an average £1.4m:

• MTVW has never before sold five properties for more than £1m each during an FY since first disclosing such statistics during FY 2008.

• Some £53m (before purchasing expenses) was used to acquire 185 properties during this FY:

• The 185 properties acquired was the highest since FY 2013 (236):

• Including purchasing expenses, the £56m spent on new properties was the largest sum since FY 2008 (£100m) and exceeded the aggregate expenditure witnessed during FYs 2020, 2021 and 2022 (£55m):

• MTVW suggested the purchase spree was prompted by market and/or regulatory concerns causing other landlords to sell:

“There are hypotheses circulating that the growing opportunities for purchasing have arisen due to either general concerns about the property market or more directly, concerns among buyers about acquiring properties with sitting tenants in the face of proposed reforms to the rental market.

In either case both play into Mountview’s core values around careful purchasing of primarily regulated tenancies and patience in waiting for vacant possession, with the latter highly aligned with the aims behind the proposed leasehold reform. “

• How the largest purchase spend since FY 2008 marries up with the aforementioned comments of “difficult economic circumstances may be with us for some years” was not explained.

• However, management’s AGM remarks implied some landlords had become forced sellers:

“Not everyone keeps their gearing at the modest level we do. There are some who are being forced to sell to keep within their borrowing limits, which presents opportunities to us and less competition for properties. The opportunities have been there and the prices have been a little more modest than they were“.

• Management’s AGM remarks also reiterated MTVW acquired regulated properties at up to 75% of their vacant possession value (see Trading properties: properties not valued by Allsop).

Trading properties: gross margin and rental income

• MTVW’s margin and profit can fluctuate due to the unpredictable mix of properties becoming available for sale during any particular period. 

• The percentage gain on each property sold — reflected by MTVW’s gross margin — is typically correlated to the duration of MTVW’s ownership, which can range from a few years to a few decades.

• MTVW noted:  

“While sales were well ahead of 2022, once again the cost factors related to timing and location of purchase led to flat gross profit…“

• A 50% gross margin was achieved through property sales during this FY:

• The 50% property-sales gross margin was the lowest since FY 2009 (43%).

• A 47% property-sales gross margin was achieved during H2, the lowest since H2 2009 (46%):

• A 47% property-sales gross margin is therefore very unusual, especially as average selling prices (excluding ground rents) during this FY were a record £395k.

• A property-sales gross margin of 47% is equivalent to buying a property for £100k and selling it for £189k.

• Management’s AGM remarks suggested the low gross margin may have been due to a greater proportion of more recently purchased properties being sold during the last few years.

• The mix of properties sold tends to even out over time. MTVW’s average property-sales gross margin over five-year periods has been reasonably consistent:
  • FYs 2019 to 2023: 58%
  • FYs 2014 to 2018: 62%
  • FYs 2009 to 2013: 58%
  • FYs 2004 to 2008: 65%
  • FYs 1999 to 2003: 59%

• Emphasising the gross-margin fluctuations due to the unpredictable mix of properties becoming available for sale, the aforementioned 43% property-sales gross margin for FY 2009 had rebounded to a super 67% property-sales gross margin by FY 2012.

• MTVW’s rental-income gross margin remained at a normal 69% after certain maintenance work was deferred during the pandemic:

• FY rental income of £19m gave a 4.5% rental yield from the carrying value of all properties:

• That 4.5% rental yield is the lowest since at least FY 1998 and may raise questions about the level of rental income from recent purchases given interest rates are now 5.25% (see Trading properties: properties not valued by Allsop).

• MTVW’s property estate had a book-value equivalent to a 6% rental yield when interest rates previously approximated 5% prior to FY 2009.

Trading properties: properties valued by Allsop

• An encouraging development during this FY concerned the proceeds from sold properties compared to a past valuation.    

• To recap, MTVW commissioned property agent Allsop during September 2014 to assess the group’s estate.

• Allsop returned a £666m valuation — some 2.1x the £318m book value of the properties owned at the time.

• The Allsop assessment was based on MTVW’s properties remaining in their regulated-tenancy state and therefore excluded any ‘reversionary’ gain (i.e. the value uplift that occurs when a regulated tenancy finishes, the rent reverts to a proper market level and the property can then be sold at a fair market value). 

• The Allsop assessment was never applied to the audited accounts. MTVW’s properties instead remain on the balance sheet at their cost price.

• Following the Allsop assessment, MTVW reveals the proceeds from sold properties versus their Allsop valuation:

• This FY witnessed MTVW sell properties with a combined £23.0m Allsop valuation for £36.2m — a premium of 57%.

• This FY’s 57% premium was split 54% during H1 and 62% during H2:

• Prior to the pandemic, premiums of between 43% and 53% on the Allsop valuation were realised on sales proceeds.

• H2’s 62% premium is the highest except for the 65-66% achieved during the comparable FY.

• The realised premium versus the Allsop valuation has implications for estimating MTVW’s potential share price (see Valuation).

• During the 8.5 years following the Allsop assessment, MTVW has raised £388m from selling properties that the agent had valued at £259m.

• Selling properties that Allsop had valued at £259m implies the book value (i.e. the original cost) of the properties sold was £124m (£259m divided by the aforementioned 2.1x multiple). 

• Selling Allsop-valued properties with a £124m book value indicates Allsop-valued properties with a £194m book value remain within MTVW’s ownership today (i.e. the £318m book value at the September 2014 assessment less the £124m since sold).

• MTVW during this FY sold Allsop-valued properties with an estimated book value of approximately £11m (£23m/2.1), which indicates the remaining Allsop-valued properties of £194m could take a further 18 years to sell.

• This FY showed total trading properties with a £423m book value, implying properties purchased after the Allsop review have a £229m book value (i.e. £423m less the remaining Allsop-valued properties of £194m).

• As more Allsop-valued properties are sold and other properties are purchased, the less relevant the 2014 Allsop valuation becomes to the share price.  

• MTVW’s results commentary has never referred to the Allsop valuation since the assessment was undertaken.

• Management’s AGM remarks reiterated another Allsop-type assessment was not being considered. The same old reasons were once again reeled off:
  • The assessment is not used by management;
  • The assessment is expensive, and;
  • There is no accounting requirement. 

• The 2023 annual report repeated the following text from previous years:

“The [Allsop] valuation is not a useful tool for running the business because we are always going to await vacant possession, and no perceived uplift in value can justify selling a tenanted property. The nature of our business and the rules and conventions under which we operate place no obligation upon us to value our trading stock at any given time and therefore the valuation has not been updated since.” 

• I maintain MTVW ought to implement regular valuations to provide greater clarity as to the inherent value of the group’s property estate.

• In particular, further valuations would help shareholders judge the astuteness of MTVW’s more recent purchases (see Trading properties: properties not valued by Allsop) and perhaps the appropriateness of the board’s pay (see Protest votes, David Pears and executive pay).

• Mind you, MTVW’s long-term dividend and NAV records do not suggest outside shareholders have been too hard done by through a lack of formal valuations. 

• September 2024 will mark ten years since the Allsop assessment was undertaken.

Trading properties: properties not valued by Allsop 

• The Allsop assessment and associated disclosures allow shareholders to evaluate the properties not valued by Allsop.

• During this FY, properties bought after the Allsop valuation raised proceeds of £18m:

• But what was the original cost of those properties that raised the £18m?

• The Allsop-valued properties sold during this FY had an Allsop valuation of £23m, which suggests their book value (i.e. purchase price) was £23m/2.1x = £11.0m.

• The total book value of properties sold during this FY was £27.0m, which implies the book value of the properties bought after the Allsop valuation and sold during this FY was £27.0m less £11.0m = £16.0m.

• Raising £18.0m from selling properties with an estimated £16.0m purchase price does not seem exceptional… 

• …especially when management’s AGM remarks (both during the 2021 and 2023 events) stressed MTVW purchased regulated tenancies at 75% of their vacant possession value.

• In theory at least, a regulated property purchased one day at 75% of vacant possession value — which then becomes vacant the next day — should enjoy an immediate 33% value uplift.

• During the 8.5 years following the Allsop valuation, MTVW has raised a total £51m from selling properties not valued by Allsop with an estimated book value (i.e. purchase price) of £49m:

• My estimates do not suggest MTVW has worked miracles buying (and then selling) properties following the Allsop assessment of September 2014.

• These estimates could easily explain why NAV growth has slowed during recent years; properties bought and the sold since September 2014 have seemingly reported limited gains. 

• These estimates could also explain why my evaluation of MTVW’s property estate has not really improved during recent years. My previous calculations were:
  • £210 per share for FY 2022;
  • £214 per share for FY 2021;
  • £202 per share for FY 2020;
  • £204 per share for FY 2019;
  • £213 per share for FY 2018;
  • £206 per share for FY 2017, and;
  • £200 per share for FY 2016.

• Buying and then selling properties for limited gains since 2014 may also explain why the share price has made little headway during the same time:

• Of course, not every property MTVW has purchased following the Allsop assessment has been sold. 

• Those properties not valued by Allsop but still owned by MTVW could be sitting on huge paper gains, while those that have been sold were held for short durations that would always limit their final profit.

• Furthermore, MTVW acquires properties other than regulated tenancies, which may require more than the 8.5 years since the Allsop assessment to maximise their upside. 

• Still, buying properties for an estimated £49m and selling for £51m can’t be deemed a rousing success and probably explains the pointed questions from David Pears at this year’s AGM (see Protest votes, David Pears and executive pay). 

• The lack of any further Allsop-type assessment leaves me to assume the properties not valued by Allsop but still carried on the balance sheet may not be worth much more than their aforementioned £229m aggregate purchase price.

• Management’s AGM remarks claimed there was “little difference” between the returns on properties purchased during the 1990s or earlier, and the return on properties bought since the 2014 Allsop valuation.

Financials

• MTVW’s accounts remain very straightforward, with properties and debt the two prime entries. 

• The aforementioned £56m spent on new properties left free cash flow at minus £8m, with extra debt of £38m and dividends of £29m leaving FY net debt at £56m.

• Net debt at £56m is the highest since FY 2015 (£60m) but is equivalent to only 12% of the group’s £448m total property estate — historically low versus the 25%-plus levels witnessed during FYs 2008, 2009, 2010, 2012 and 2013:  

• Management’s AGM remarks noted the board would “pay much greater attention to managing debt and cash flow” if gearing reached 25%.

• MTVW’s current banking facilities allow borrowings of up to £90m, equivalent to 20% of the total property estate.

• Finance costs of £1.2m for this FY exceeded the ultra-low £298k for the comparable FY, and implied a manageable 3.2% interest rate on this FY’s £38m average debt.

• Note that H2 finance costs were £876k — more than double H1’s £336k — due to greater debt and rising debt costs.

• Average debt during H2 was £43m, implying a 4.1% interest rate:

• Interest cost at 4.1% is the highest since H2 2013 (4.3%). H2 debt costs of £876k were the highest six-month charge since H2 2014 (£1.2m).

• The 2023 annual report confirms MTVW’s borrowings are variable rate with a margin of approximately 2% above SONIA:

1. The Group has a short-term borrowing facility of £10 million (2022: £10 million) with Barclays Bank. This is due for review in November 2023 and the rate of interest payable is:

• 1.6% over base rate on overdraft
• Headroom of this facility at 31 March 2023 amounted to £9.94 million (2022: £10 million).

2. The Group has a £60 million (2022: £60 million) long-term revolving loan facility with Barclays Bank with a termination date of March 2027. The rate of interest is 1.9% above SONIA. The loan is secured by a cross guarantee between Mountview Estates P.L.C. and its subsidiaries. The loan is not repayable by instalments. Headroom under this facility at 31 March 2023 amounted to £20 million (2022: £58 million).

3. The Group has re-negotiated a £20 million long-term revolving loan facility with HSBC Bank. The termination date for this facility is March 2028. The rate of interest payable on the loan is 2.1% above SONIA. The loan includes a Negative Pledge. The loan is not repayable by instalments. As at 31 March 2023 headroom under this facility amounted to £3.3 million (2022: £2.8 million).”

• SONIA is currently 5.19%, which means MTVW should now be paying approximately 7.19% on its debt. 

• Assuming gross debt stays at £57m and SONIA stays at 5.19%, finance costs would advance from £1.2m to £4.1m for FY 2024.

• Extra finance costs of £3m equate to approximately 77p per share, and the higher rates will dampen future NAV growth.

• This FY’s £6.3m tax charge would have been £8.2m under the new 25% UK tax rate. 

• Extra tax of £1.9m equates to approximately 49p per share, and the higher rate will also dampen future NAV growth.

• MTVW’s trading-property estate has a £423m book value, of which regulated tenancies represent £334m or 79%:

• The market for MTVW’s regulated tenancies will continue to shrink. Such tenancies have not been created since 1989 and Allsop estimates fewer than 75,000 now exist.

• The number of regulated tenancies owned by MTVW topped 3,000 20 years ago, topped 2,400 ten years ago but today stands at less than 1,900:

• MTVW’s conventional investment properties remain in the books at £25m or £6.52 a share.

• An outstanding £4.4m due from three property sales  — paid just after the year end — meant trade debtors were uncharacteristically well beyond the typically tiny 1% of revenue:

• MTVW’s accounts remain free of defined-benefit pension obligations.

Protest votes, David Pears and executive pay

• MTVW’s shareholders fall into three camps:
  • The Sinclair family concert party, which is led by chief executive Duncan Sinclair and controls 50.4% of the share count;
  • The Murphy family and connected parties, who claim to own 24% of the share count and whose leading shareholder is Margaret Murphy, the chief executive’s sister, and;
  • Everybody else, who own approximately 25% of the share count.

• MTVW’s last seven AGMs have witnessed c30% (or more) protest votes against:
  • Re-electing independent non-execs;
  • Approving the board’s pay, and;
  • Re-appointing the auditors. 

• The protest votes have been led by the Murphy family and connected parties.

• From what I can tell, the Murphy family is broadly satisfied with how MTVW’s day-to-day operations are run, but:
  • Is aggrieved about the board’s pay;
  • Has lost the trust of the non-execs to act on the views of all shareholders, and;
  • Is frustrated about a general lack of influence at board level.

• The Murphy family stated during the 2021 AGM that it was no longer in direct communication with the company and would engage with the directors only through a “public forum“.

• The 2023 AGM attracted another unhappy shareholder: David Pears. 

• David Pears is part of the Pears family that controls property group William Pears. 

• William Pears controls Talisman, an investment fund established to manage the Pears family’s wealth. Talisman owns 7% of MTVW:

• During the AGM Mr Pears asked:

“Interest rates have gone from zero to 5%, but you are still paying 75% of vacant possession. At zero you are paying 75% and at 5% you are paying 75%?!
…
“Can you disclose IRRs on the properties sold? Your results could be flattered because properties that may have been brought in 1990. I am concerned with your approach, spending £50m with interest rates rising, and EPC costs. What sort of return are you really going to get from today and from the last few years as well?”
…
“You have talked about succession plans for [non-executive] Ms Archibald. What are the succession plans for the senior management?“

• I sat directly in front of Mr Pears during the AGM and let’s just say during the post-meeting chit-chat he did not appear impressed by the board’s responses to his questions.

• Talisman’s shareholding has increased from less than 3% to more than 7% since 2016:

• I don’t know why Talisman has increased its shareholding given Mr Pears seems unhappy with the board. 

• The Murphy family, (presumably) Talisman and other unhappy shareholders prevented the re-election of certain non-execs at the last AGM — and the six prior AGMs:

• Following each AGM, MTVW is entitled to convene a general meeting (GM) and hold a further vote to re-elect the ousted non-execs.

• The ousted non-execs have (to date) all been re-appointed at the subsequent GMs because the Sinclair concert party can then vote on the non-exec re-elections (unlike at the AGMs, where the concert party is prohibited from voting on particular ‘independent’ resolutions):

• The GM to re-appoint the non-execs voted off the board at the 2023 AGM will be held on 20 November.          

• The number of unhappy shareholders has been increasing. The average AGM votes against the re-election of the contentious non-execs have climbed from 827k to 1,220k since 2017.

• The 2023 AGM also revealed a 9% protest vote against MTVW’s two executives. 

• I speculate that 9% was led by Talisman. Near-3% protest votes against the executives were lodged at the 2022 AGM, with immaterial protest votes lodged before 2022.

• Stock-market rules dictate any company incurring a 20%-plus AGM or GM protest vote has to contact the unhappy investors and publish an update to shareholders within six months. 

• Six months after the 2022 general meeting, during May 2023, MTVW announced:

“Following the meeting, the Company identified, as far as possible, those shareholders who did not support the resolutions and attempted to engage with them to seek their views. Some shareholders did not wish to engage, other shareholders raised matters which are under consideration by the Board. 

The Board is grateful to those shareholders who took part in the engagement process and value the feedback provided. The Company re-affirms its commitment to ongoing shareholder engagement and will continue to offer to have discussions with shareholders and will take into account their concerns and considerations in the future.”

• MTVW has never before expressed its gratitude to shareholders providing feedback.

• But whether any of the matters raised will convert into action remains to be seen.  

• No less than 13 AGM/GM protest votes since 2017 suggest the “engagement process” has no influence on board decisions.

• The ineffective protest votes have not yet persuaded the Murphy family to sell; in particular, Companies House indicates Margaret Murphy has maintained a 500k-plus shareholding since at least 1980.

• My feedback to a non-exec after the AGM was MTVW would receive far less grief if the executives toned down their pay and redeploy the savings into an occasional estate valuation.  

• Chief exec Duncan Sinclair has received a bonus every year since at least FY 2001…

• …which does raise the question as to whether board bonuses are effectively guaranteed.

• The two executives shared £2m between them last year…

• … while the wider workforce averaged a useful £79k:

• The feeling among attendees during the post-AGM chit-chat was the board is very well paid for essentially:
  • Putting vacant properties into auction;
  • Collecting rent, and;
  • Buying properties during recent years that may not have earned worthwhile gains on disposal.

• MTVW is the only company I know that includes remuneration ratios within its annual-report summary table:

• MTVW should add ratios that compare remuneration to NAV.  

• For this FY, executive pay of £2m reduced NAV by 0.5% and total pay of £4m reduced NAV by 1%.  Such percentage reductions have occurred consistently throughout the last 20 years. 

• Employee pay reducing NAV by 1% per annum has become more notable after NAV declined during this FY and the previous FY.

• At least MTVW does not operate a share-option scheme, and in fact has never issued any new shares since at least 1979.

Valuation

• I now calculate MTVW’s shares could be worth £186 were all of the group’s regulated tenancies to end immediately and the properties then sold at a fair market value.

• The following table outlines the sums:

• I have taken the estate’s September 2014 value of £318m and subtracted the (estimated) £124m book value of Allsop-assessed properties sold since that date. 

• I then multiplied the £194m remainder by the 2.1x ‘Allsop-premium-to-book’ multiple and then added the 57% ‘sold-premium-to-Allsop’ gain that was realised during this FY.

• I arrived at a £640m estimate for all of MTVW’s properties that were owned at September 2014 but have yet to be sold.

• Since September 2014, MTVW has acquired additional properties with a £229m book value. 

• I have assumed these additional properties will be sold for their £229m book value — based upon my analysis of properties bought and then sold since the Allsop assessment (see Trading properties: properties not valued by Allsop).

• Adding the £640m and the £229m together gives £869m.

• This next table adjusts that £869m for 25% taxation, the £25m conventional property portfolio, net debt and other liabilities to give a possible book value of £725m or £186 per share:

• My estimated NAV sums are not perfect, and the following questions remain unanswered:
  • How long will MTVW take to sell all of its properties?
  • Will potential house-price inflation compensate for being unable to sell all the properties immediately?
  • How relevant is the 2014 Allsop assessment today?
  • Will properties bought since the 2014 Allsop assessment continue to be seemingly sold at cost price?
  • What impact could annual admin costs of £7m have on the calculations? (I have ignored such costs)

• MTVW’s shares have drifted lower to trade at NAV:

• The best time to buy appears to be when the market cap trades at (or below) NAV, at which point no future gains from any property purchases are priced into the valuation.

• What future gains could lie ahead?

• For perspective, the ten years to this FY witnessed:
  • NAV advance by £147m, from £244m to £391m, and; 
  • Cumulative dividends paid of £159m:

• Generating an additional £306m (£147m extra NAV plus £159m cumulative dividends) from a starting NAV of £244m over ten years equates to a compound annualised return of 8.5%.

• For further perspective, the ten years to FY 2015 witnessed NAV advance £155m and dividends accumulate to £64m, equating to a 10.3% compound annualised return from the £132m starting NAV…

• …while the ten years to FY 2007 witnessed NAV advance £111m and dividends accumulate to £36m, equating to a 13.0% compound annualised return from the £62m starting NAV:

• The next ten years repeating the aforementioned 8.5% annualised return may not enthuse prospective investors given:
  • MTWV’s ten-year returns have been declining over time, and;
  • Fixed-term cash alternatives now yield 5%-plus. 

• Perhaps a discount to NAV is now required to generate suitable investment returns.

• For example, my original MTVW purchase occurred during 2011 when the £42 shares traded at 0.75x the then £55 per share NAV.

• Since then:
  • The market cap has advanced by £230m, from £160m to £390m, and;
  • Cumulative dividends of £172m have been paid…

• …equating to an 11.0% annualised total return since FY 2011.

• Without the market-cap re-rating from the then 0.75x NAV to today’s 1x NAV, my annualised return from that original £42 purchase would have been 8.3%.

• Could the “difficult economic circumstances [that] may be with us for some years” alongside an increasingly despondent stock market once again push the share price towards a 0.75x NAV multiple?

• The shares sank to £21 at the depths of the 2008 banking crash, giving buyers a 0.44x NAV multiple versus the then £48 per share NAV.

• At least future returns from today are front-loaded by near-term dividend payments: 

• The illustrious ordinary payout supplies a 5.0% income at a £100 share price — the highest yield for at least 30 years excluding the banking crash.

Maynard Paton