CDL & CDI ... Another Great Result

[Vaygor1]

With current independent land valuations, if CDI liquidated, a quick calc tells me one would get about 80c a share but currently just over 50c a share.

Is this stock undervalued?

If so, is it because of its lack of sharemarket trade-ability due to its obscurity?
or maybe because it listed many many years ago through the back door?
or their cornerstone shareholder is Millennium & Copthorne Hotels (MCK) who haven't been doing so well lately?
or some bad history maybe?
or is it just a good buy?

Here is a summary of their last audited results:

Attachment 5982


Given these figures along with the SP pre-announcement (ie taking into account market sentiment) I would expect the current SP to be 68-70c by now.

For the year ending 31-Dec-2013, their percentage increases compared to 31-Dec-2012 across the board were even better than the figures above but the price has still not moved appreciably in all that time since Jan-2013.

Any feedback appreciated.

Disc: Holding some.

[whipit]

I think liquidity is a turn off.
It is difficult build a substantial holding without pushing the price through the roof.

$5k can cause a 2.8% drop, and there is seldom more that $200k is depth.

I'm not sure what the catalyst would be to push this along but I agree they are producing results.

[Vaygor1]

Thanks WhipIt.

I think you have a valid point there for sure. At times in the recent past there have been zero sellers and zero buyers for reasonably lengthy periods (ie weeks).
I guess when people need cash they need cash, so just sell at whatever price they can find a buyer at, maybe even knowing full well they are getting rid of them for cheap.
Used to be like RYM was once many years ago - hence the name of the ShareTrader thread 'Ryman - too boring to talk about?' which started almost to this day 10 years ago.

In addition to the above, do you think that the Chinese owning/controlling most of MCK who own most of CDI has any negative impact on market sentiment towards CDI? Bit of a touchy subject but Chinese ownership is talked about a lot in the press ie Winston/Greens/Crafer Farms/melamine/Orivida etc etc.

Disc: Nationality kiwi. No Chinese ancestry.

[blackcap]

Thanks WhipIt.

I think you have a valid point there for sure. At times in the recent past there have been zero sellers and zero buyers for reasonably lengthy periods (ie weeks).
I guess when people need cash they need cash, so just sell at whatever price they can find a buyer at, maybe even knowing full well they are getting rid of them for cheap.
Used to be like RYM was once many years ago - hence the name of the ShareTrader thread 'Ryman - too boring to talk about?' which started almost to this day 10 years ago.

In addition to the above, do you think that the Chinese owning/controlling most of MCK who own most of CDI has any negative impact on market sentiment towards CDI? Bit of a touchy subject but Chinese ownership is talked about a lot in the press ie Winston/Greens/Crafer Farms/melamine/Orivida etc etc.

Disc: Nationality kiwi. No Chinese ancestry.

Hi Vaygor1,

I was going to get back to you earlier but got caught up with work. I think the illiquidity does pose a small problem as Whipit stated but to be fair I also think Xenophobia has a lot to do with it. I hold CDI and am very happy to keep holding and think looking forward you have made a great case. But even I am wary of Asian influence in my investments as I have been burned with Richina in the past. Off course its all anecdotal and my fears more than likely have no empirical base but I cannot shake that feeling. It might be a touchy subject but I think you have hit the nail on the head.

[Vaygor1]

Thanks Blackcap.

I just took a quick look at CDI's last annual report. 20th largest shareholder has approx 310,000 shares equating to 0.11% of the company. The dividend reinvestment plan (which I subscribe to) will have altered these numbers slightly since then.

Whipit infers there is occasionally more than $200k in CDI depth on the NZX (not sure if that is $200k in just sellers, just buyers, or all up). But in any event, $200k @ approx $0.50/share would buy 400,000 shares, currently around the 18th biggest shareholder slot. As Whipit also points out, one would likely pay a (hopefully small) premium for the shares, as any buyer after that sort of quantity would probably bump the price up a bit given the shares' lack of liquidity…. but in my view, the price should be up anyway and it is this lack of interest in CDI that 'bumps' it back down again.

Re the Chinese ownership. I don't know if any uneasiness I feel is purely the Chinese ownership thing, or more perhaps the history of the company ownership and the debacles going back a long way now.


Long ago - all bad news:
The combination of complex historical bad stuff involving Judge Corp, Renouf Corp, Euro-National, Kupe Group (which is now CDI), Rod Petricevic, October '87 crash, etc etc and the impact that has had on MCK up to even 4 years ago even though none of this should directly effect CDI today…. but as they say, sh!te splatters.
E.g. http://www.nzherald.co.nz/business/n...ectid=10648133


Not so long ago - average news:
Info here including further hyperlinks to what was going on around 8-10 years ago.
http://www.propbd.co.nz/cdl-investme...-revaluations/


Recent times - all good news:
Plenty of info here.
http://www.propbd.co.nz/category/sec...l-investments/
and further info on the page-hyperlinks at the bottom of this link demonstrating a few other bumps along the road in-between the periods above.

All up, I think I trust the board as they stand today. The company seems to have matured in its behaviour, competency, transparency, and accurate yet conservative forward guidance. Without this, I am almost sure I would not have bought any.

[Lizard]

I think the board have been pretty solid. Costs always look well-contained and they have proved the ability to select and develop a quality land-bank. Weakness for now is still about lack of liquidity/public profile. The only way the small companies on the NZX get any real notice is if they want to raise debt or equity and therefore spend money getting assistance from the brokers. Profitable companies with solid balance sheets and slow growth can fly under the radar for a long time, with only dividends or a takeover to support the share price. In the case of CDI, MCK ownership puts paid to the latter (unless they were to be the acquirer).

My experience suggests that these sorts of companies aren't going to give the glamour 100%+ returns, but they can frequently manage a solid 30-50% gain over 1-2 years if the dividend and profits are on the rise and without too much downside risk over the medium-long term.

It is difficult to know how determined efforts to both quell the rise in house prices and reduce the cost of new building will affect CDI, as there are possible factors both for and against profit increases.

[forest]

Had a conversation with the Managing Director BK Chiu, my understanding is that sections are selling well and CDI are likely to sell more sections than last financial year. However profit growth might not be what you expect as the average value and profit margin per section is likely to be reduced because of the locations of the sections presently sold. Also CDI are finding it harder to purchase land for a price they consider acceptable. So maybe the cycle for this stock is closer to its high than its low. SP low was less then 30c, 3 or 4 years ago so as a cyclic company it has done its job.

[whipit]

Had a conversation with the Managing Director BK Chiu, my understanding is that sections are selling well and CDI are likely to sell more sections than last financial year. However profit growth might not be what you expect as the average value and profit margin per section is likely to be reduced because of the locations of the sections presently sold. Also CDI are finding it harder to purchase land for a price they consider acceptable. So maybe the cycle for this stock is closer to its high than its low. SP low was less then 30c, 3 or 4 years ago so as a cyclic company it has done its job.

This has been playing on my mind a little bit. A company like this is very difficult to know what their future earning look like. You can get a feel for how efficiently they can turn a piece of land into a section, but it is very difficult to predict the demand for a section in different locations. Even with good due diligence on their land bank. Some of it is going to be hot, some of it not?

[Vaygor1]

2014 H1 financials out yesterday. https://www.nzx.com/companies/CDI/announcements/253326

Yet another great result. Profit up 43.3%, EPS up 42% (due to Dividend Reinvestment Plan) and income up 64% compared to same period last year. How undervalued can this stock get? Bought some more this morning.

I do have some questions though, for I think that the board is playing down CDI's performance and future guidance for reasons unknown.

With the sterling H1 result how on earth can they say they are only on track to achieving a similar full year result as last year? I expect them to do much better, and to achieve only last years result by 31 December 2014 would reflect a dismal 2nd half performance given the current figures.

Dividend reinvestment plan from end of last financial year. MCK took the cash. Have they reached their overseas shareholding cap?
Dividend payout was about $5.1 million and they bought 4.1 hectares in Auckland ($4.5million?). Cash as against December has only moved down $2million.

Land Bank property under current assets has moved down by $18M, over 50%. It looks like they have lots of land ready to develop under their non-current assets but this raises questions.

For each land parcel of undeveloped land in their land bank (or on average at least):
1. What is the time frame to develop the land to become a current asset?
2. What is the cost to move it?
3. What is the expected sales revenue down the track?

This information is needed by all shareholders to continue to have confidence in the board imho.

They have the cash to develop and acquire more land for sure. It looks like the development property is there but not much of it is ready to sell. So without further info I want to see CDI get moving, develop what they've got, and quickly or they will run out of saleable stock.

Thoughts anyone?

[Lizard]

I have plenty of confidence in the board. However, the market for land is cyclical. I think they are being cautious in their second half forecast and will outperform. But I also think that by the time that becomes apparent to the market, it may also be apparent that the cyclical peak for land sales is past, so the price might continue to track sideways.

I guess from some investment perspectives, investing in a cyclical is more worthwhile when the share price behaviour is more volatile than the underlying commodity. For the lazy investor, less volatile is good.