MET - Metlifecare - one for the fundies?

[Sauce]

This is very odd. Surely trading at 50% of net tangible property assets cannot go on forever??!!

!! ??

Meanwhile Ryman trades at 200% net tangible property assets and humbly credits their performance due to good service and consistent and simple operating model.

Will be interesting to wee outcome of the strategic review. Hopefully some improvement in liquidity and possibly some value will start to be realised....

Hi Michael,

I'd be very careful with this one

You have to consider the relative economics. Metlifecare's assets have been creating significant losses for shareholders, therefore the market is discounting them. This is the correct response from the market. The "valuations" mean a whole heap of nothing unless Metlifecare decides to sell their villages, and in that case they would still need someone in the market for an entire village to stump up that amount, or the valuation still means nothing. So basically, the NTA valuation you mention is information that is not as useful as it seems.

If I had a bank account with $1,000,000 cash balance (that could never be withdrawn) that was losing -5% a year, and I told you I had a registered valuation on the bank account identical to its NTA of $1,000,000 but I would kindly sell it to you at a 50% discount (i.e. $500,000). Would you jump at the opportunity? I think you would have to be pretty damn sure that bank account would return to +5% or more in a hell of a hurry before you got interested in buying my bank account at this "discounted" price.

RYMAN on the other hand makes an economic return of about 30% on all the money it retains in the business. That's a formidable return and one that Mr Market will quite rightly pay a premium for. If I told you I had a bank account with $1,000,000 in it returning $300,000 a year compounding annually, what would you pay me for THAT bank account? I suspect you might part with a fair bit more than $1,000,000? Well so would the general market - hence the price offered for RYM shares.

Of course MET might turn its profitability around, in which case the current price might turn out to be a bargain. But there is a very good reason why MET is in the current situation its in. And that's because the business has performed very poorly. The opposite is true of RYM.

I think the time to get excited about a discount to net tangible assets is only when you have an insight into the business and its odds of achieving sound future economics i.e. profits and high, or at least adequate, returns on invested capital.

Cheers

Sauce