We are all looking to buy good companies trading below tangible book value. How about buying good companies trading at one-third of book value?
When I looked at the balance sheet of AFI Development (PINK:AFDVF) I couldn’t believe my eyes. My first question was why don’t others see it? My theory is that companies that have good exposure to wide investment communities are mostly those trading on NYSE and Nasdaq. When it comes to companies trading on the London Stock Exchange (LSE) there is less research, less coverage and less visibility in electronic platforms, all resulting at significant underpricing.
AFI Development is a publicly traded subsidiary of Africa Israel Investment Group. The group is active worldwide and focuses on projects in real estate, construction, infrastructure, industry and hotels. AFI Group has over 70 years of experience in the real estate development business. AFI Group owns many high-profile buildings across the U.S., Russia and Europe. In New York, for example, it owns the New York Times Building, the “Clock Tower” (recently sold) and the APTHORP exclusive residential building.
It is moreover active in Miami, Los Angeles and Phoenix, and is a partner in the Hard Rock amusement park in Myrtle Beach South Carolina (under construction) and holds building rights for a mega project in Las Vegas.
AFI Development is the only real estate development company in Russia with premium listing on the LSE. Its portfolio, valued at $2.6 billion, consists of six yielding properties, nine commercial projects under development, two residential projects under development, two completed residential projects, eight land bank projects and five hotels. Total debt is slightly over $1 billion and equity is $1.6 billion.
With market cap of $600 million, tangible book value of 1.6 billion seems hard to believe. We are talking about a company building at the most lucrative locations in Russia. The recent mall (Afimall) built by AFI in Moscow is one of the biggest and most ambitious projects in Europe. Its located at the heart of “Moscow City” which is the Manhattan of Moscow. Just search “Moscow City” in Google to visualize it better.
AFI's current P/E is 2.9; the company recorded profit of $171 million in 2011, up from $26 million a year ago.
In 2012, however, the company faced a few unfortunate developments. City of Moscow passed a new program under which all existing developments in the historic center of the city are being reevaluated, which affects four projects under development by AFI. Additionally, in another project, AFI had a partner which filed for bankruptcy. In total all this caused the company to write off $240 million from its balance sheet, bringing the equity down to $1.6 billion from $1.8 billion.
However, the city of Moscow compensated AFI for some of the losses and allowed it to build another large-scale project in a different location. The losses recorded occurred due to changes in development plans and resulted in reevaluation of the portfolio.
Regardless of all this, the company projected that profits for 2012 should be similar to 2011 and in 2013 should increase to $278 million. Afimall alone is valued at over $1 billion and producing $65 million of rental income. Total rental income is over $117 million and should be constantly increasing with completion of new office properties. The company has no issues financing its current operations and probably won’t have any issues in the future with its loan-to-value ratio standing on average at 40%. In 2011, book value grew by 23%.
So what is the reason for such low market capitalization? It's a combination of recent problems which created the current opportunity and generally negative sentiment of investors toward companies operating in Russia.
I watched many interviews with American investment bankers living in Russia on a TV program of world-famous Russian businessman Oleg Tinkov (currently building an Internet-based credit card company with Goldman Sachs as one of the investors). They all love Russia and they all say that the Russian government should really invest in changing negative image of the country because reality is quite different from the pictures Western media likes to draw.
Benjamin Graham never knew exactly when his investments would appreciate, so we don’t know when shares of AFI will reflect its NCAV. But it should happen at some point.
By the way, before 2008, AFI Development was trading at $10 per share. Not much has changed fundamentally for the company since. I wrote a short article about AFI in Russian on my Russian blog and I strongly regret not hitting the buy button the same day. Next day, the shares jumped literally 16%. I bought some today at $0.58 instead of $0.50 just few days ago.
When I looked at the balance sheet of AFI Development (PINK:AFDVF) I couldn’t believe my eyes. My first question was why don’t others see it? My theory is that companies that have good exposure to wide investment communities are mostly those trading on NYSE and Nasdaq. When it comes to companies trading on the London Stock Exchange (LSE) there is less research, less coverage and less visibility in electronic platforms, all resulting at significant underpricing.
AFI Development is a publicly traded subsidiary of Africa Israel Investment Group. The group is active worldwide and focuses on projects in real estate, construction, infrastructure, industry and hotels. AFI Group has over 70 years of experience in the real estate development business. AFI Group owns many high-profile buildings across the U.S., Russia and Europe. In New York, for example, it owns the New York Times Building, the “Clock Tower” (recently sold) and the APTHORP exclusive residential building.
It is moreover active in Miami, Los Angeles and Phoenix, and is a partner in the Hard Rock amusement park in Myrtle Beach South Carolina (under construction) and holds building rights for a mega project in Las Vegas.
AFI Development is the only real estate development company in Russia with premium listing on the LSE. Its portfolio, valued at $2.6 billion, consists of six yielding properties, nine commercial projects under development, two residential projects under development, two completed residential projects, eight land bank projects and five hotels. Total debt is slightly over $1 billion and equity is $1.6 billion.
With market cap of $600 million, tangible book value of 1.6 billion seems hard to believe. We are talking about a company building at the most lucrative locations in Russia. The recent mall (Afimall) built by AFI in Moscow is one of the biggest and most ambitious projects in Europe. Its located at the heart of “Moscow City” which is the Manhattan of Moscow. Just search “Moscow City” in Google to visualize it better.
AFI's current P/E is 2.9; the company recorded profit of $171 million in 2011, up from $26 million a year ago.
In 2012, however, the company faced a few unfortunate developments. City of Moscow passed a new program under which all existing developments in the historic center of the city are being reevaluated, which affects four projects under development by AFI. Additionally, in another project, AFI had a partner which filed for bankruptcy. In total all this caused the company to write off $240 million from its balance sheet, bringing the equity down to $1.6 billion from $1.8 billion.
However, the city of Moscow compensated AFI for some of the losses and allowed it to build another large-scale project in a different location. The losses recorded occurred due to changes in development plans and resulted in reevaluation of the portfolio.
Regardless of all this, the company projected that profits for 2012 should be similar to 2011 and in 2013 should increase to $278 million. Afimall alone is valued at over $1 billion and producing $65 million of rental income. Total rental income is over $117 million and should be constantly increasing with completion of new office properties. The company has no issues financing its current operations and probably won’t have any issues in the future with its loan-to-value ratio standing on average at 40%. In 2011, book value grew by 23%.
So what is the reason for such low market capitalization? It's a combination of recent problems which created the current opportunity and generally negative sentiment of investors toward companies operating in Russia.
I watched many interviews with American investment bankers living in Russia on a TV program of world-famous Russian businessman Oleg Tinkov (currently building an Internet-based credit card company with Goldman Sachs as one of the investors). They all love Russia and they all say that the Russian government should really invest in changing negative image of the country because reality is quite different from the pictures Western media likes to draw.
Benjamin Graham never knew exactly when his investments would appreciate, so we don’t know when shares of AFI will reflect its NCAV. But it should happen at some point.
By the way, before 2008, AFI Development was trading at $10 per share. Not much has changed fundamentally for the company since. I wrote a short article about AFI in Russian on my Russian blog and I strongly regret not hitting the buy button the same day. Next day, the shares jumped literally 16%. I bought some today at $0.58 instead of $0.50 just few days ago.
