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it’s all consolidated in those financial statements. You’ll notice if you dig deeper into the annual report that one operating segment is “residential land development” (CDL).
the market value of CDL (eg the share market market cap) is not reflected in the accounts.
Attachment 12734
I’m of the opinion that MCK is drastically undervalued, especially given CDL market cap.
To me it looks like the full values from CDL's balance sheet are included in the MCK balance sheet.
However, MCK only owns 66%, so the remaining 34% needs to be netted out somewhere. The only obvious place is non controlling interests in Equity (which technically seems incorrect to me, but like I said, the only obvious place I can see).
yeah that s right - the “non-controlling interests” is the portion of subsidiaries that MCK doesn’t own. This is standard accounting practice for companies that own more than 50% (controlling interest) in another company, nothing incorrect about it at all. All the metrics reported for the company (EPS, Net Assets per Share etc) are after the non-controlling interest portion has been removed.
So for instance the net assets per share of $4.70 reported 6 months ago includes only the ~66% portion of CDL assets that MCK owns.
How does this work for the cashflow statement? It's accounting for 100% of CDI cashflows too (since the cash figure on the balance sheet and cashflow statement match), but there's no where to net out the 33% unowned portion. I would think this is significant, because if you were in a situation where MCK's cashflow was negative and CDI's was positive, or MCK had no cash and CDI had a lot, the distinction would be important to know.
The way the accounts are prepared, it seems we're unable to know how much of the cash position belongs to each company without reconciling with the CDI annual report?
The $4.70 Net assets calculation is $743.6m / (105.578m ord shares + 52.740m pref shares). The $99.4m of non-controlling interests is not part of this calculation.
As noted by LaserEyeKiwi, this is the standard way of doing things when you have a controlling interest.
yes if you are really concerned how much cash CDL has then you can always check the CDL account. MCK has plenty of cash though - so much so that they didn’t need to take any cash from CDL by way of dividends and took new shares instead (upping their ownership percentage in CDL).
MCK effectively run both companies anyway, anyone holding CDL shares is effectively investing in MCKs residential land property development operation, and have no exposure to the hotel operations or the Zenith property sales in Sydney. I prefer to have the full exposure to MCK as CDL is closer to fully valued, whereas the hotel operations (and zenith) are trading well below half where they should be.
The biggest risk I'm seeing is that the parent (MCK UK) owns 70% of the stock meaning they completely run the show. Essentially your voting rights are useless? Let's say they need cash, they could sell off properties and pay it out in divs, or use intra company loans. Nor do we get to vote on directors? This bonehead deal they made in China where they ended up having millions of shareholder funds stolen is a good example of why this can be important - https://www.nzx.com/announcements/193641
Possibly this is why the stock trades so far below NTA -if you look back to 2012/2013 when the share price was 70 cents, the book value was $1.33 - a similar discount to today. I think the discount provides good downside protection, but even after 10 years the market hasn't realised book value.
Actually - MCK.UK is as well only a strawman - they are majority owned through a number of other companies and funds by the Kwek family in Singapore. Google "Hong Leon group" - and you will find as well CDL Singapore (https://www.cdl.com.sg) as majority shareholder upstream. CDI (NZ) is as part of MCK (NZ) through MCK (UK) part of the world wide CDL empire. If you don't like it, better don't invest with them. Other people don't like to invest with Warren Buffett - same thing.
And yes - our vote has exactly the weight it should have (in proportion to capital invested), but as with any other company with a firm majority holder, this is not a lot. Many companies (e.g. all our gentailers, AIR and similar) do have majority shareholders. Not a biggie, if you can trust them, and I would rate Hong Leon in that regard higher than the fickle whims of some NZ government of the day.
Any concerns re cashflow in this empire are on a similar base as if you would express concerns that Berkshire Hathaway might need to do financial acrobatics to cover up some lack of cash flow. This is a very conservative company owned and run by people with gigantic reserves who know what they are doing. Obviously - their interests (like e.g. hiding wealth) might not be always well aligned with the interest of minority retail share holders.
Discl: holding both CDI and MCK as long term (buffett-type) investment. So far none of the companies did disappoint me. However - this is not a share for a quick trade or for a get rich quick scheme. Very suitable however in my view to get rich slowly :):
Interesting info thanks.
I find it strange how uber rich families/empires have small listed companies like this floating around, especially in a foreign country. CDL Singapore has 12.5b in net assets and I'm guessing this Kwek family has several billions more. MCK is worth 700m which is pocket money, surely it's far less headache to just take it private? Much like Buffett pretty much owns all his smaller subs outright.
I'm guessing there must be some tax/legal advantage the companies have when they're NZX listed as opposed to being 100% foreign owned.