The heavy correction has punished a lot of stocks, but one of those most heavily punished is Allco REIT.
It has fallen more than 50% from $1.40 in May 06 to $0.67 currently (see chart below).
At $0.67, Allco REIT is trading at an amazing 50% below its NAV of $1.34, offering a yield of 8.93% based on FY2006 payout of $0.0598.
Its yield is set to rise because its FY2007 net income is expected to reach at least $0.10 per share based on its 3Q results thus far.
As such, I am placing Allco REIT on the stock alert with a buy at $0.67 at 50% below NAV.
That said, I want to add that Allco REIT has been falling on very heavy volume recently, which is not a good technical indication - thus I would prefer to stagger my buys just to be on the safe side.
Friday, February 1, 2008
Stock Alert Update.
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13 comments:
Hi Kleer,
its been a while I post a comment here.
just would like to clarify with you:
That said, I want to add that Allco REIT has been falling on very heavy volume recently, which is not a good technical indication - thus I would prefer to stagger my buys just to be on the safe side.
What do you mean by thus I would prefer to stagger my buys just to be on the safe side.
Thanks and have a good day.
Onehubster
It means that based on TA, Allco has been under a lot of selling pressure recently and its price MAY go down further.
hi kleer, There is another stock also went down heavily, CitySpring, from 1.60 to 0.78 now with NAV 0.80. what is your opinion ??
A lot of selling have been from JP Morgan, whom are the representing Allco Financial of Aus. (Owner of Allco Reit)
Allco F is trying to get some fund as there is $1.1 billion short term loan needed. Allco F share have drop 40% in 1 day before recovering to AUS$3.10.
I have cut lost for my Allcoreit position at $0.88 and $0.77 respectively.
Due to very attractive valuation, I have re-enter the position at 0.67 & 0.70 in the span of 3 days.
I believe Allco Reit is a good long term bet. A lot of bad news in the market have open up opportunity for us to enter at an attractive price.
Like Warren B says
"It is safer to buy stocks when they are cheap, and not when they are more expensive."
"I love the bear that give away shares for close to nothing."
"Do not treat shares like Jewelry, only buy shares when they are undervalue."
On Cityspring:
Based on the fact that there are other business trusts (e.g. Allco, K-Reit) available at 50% below NAV, don't you think it is logical to only buy Citypsring if it falls to that valuation?
Taken from SI comment by Truevalue:
http://forum.shareinvestor.com/forum/showthread.php?t=1617
I dont wish to dent your optimism (vested interest myself) but the annual report clearly shows some weak points... here's my 5c worth of views.
620mn $ of refinancings to be done this year, with the credit crunch going on, it's not a great environment for it. However, assume ultimately they wont have a problem getting the funds refinanced as the asset backing looks ok.
Gearing is more of a problem - 43% sounds fine, but keep in mind that their Australia and Singapore properties have been revalued upwards by 30-ish percent in 2007 alone. Recent transactions here point towards an end of the boom, and lots of supply coming up from 2010onwards. If there was a correction in property values of, say, just 20-25 percent (not a big deal considering how much properties gained in just one year) and debt stays unchanged, their gearing would come close to the maximum 60% allowable. Latest at that point they may be forced to raise new equity (or sell assets) to pay down debt, something they decided not to do in November when units were trading above 90c. Raising equity when the unit price is low can strongly dilute net asset value and distribution per unit. Current debt levels would also make it difficult to buy more properties financed by debt.
So - Allco Reit seems at least to a considerable part a play on the property market holding up very well. In order to grow further, at some point either new equity has to be issued, or property prices must race up further (how likely is that in the short term?) to reduce gearing and allow room for debt expansion. Unfortunately difficult to imagine their shares staging a quick run-up to much higher prices in the short- to medium term.
Any comments?
I will continue to take interest in office trusts, for eg. ALLCO for a few reasons:
1. Consistent income distribution to unit holders (though not guranteed).
2. Distribution yield is looking more attractive as we experience declining interest rates.
3. For investors adopting a longer term outlook, in my view, I see strong demand for office space in the years ahead.
4. Government commitment to make S'pore a global / regional financial hub.
5. Strategic move by Temasek & GIC to invest in big banks hit by credit crunch could (in my own opinion) aid in drawing these banks into relocating some operations to S'pore in the future, thus boosting demand for office space.
6. Perhaps or maybe, we'll witness some mergers / takeovers among trusts given the recent declining unit prices.
7. Agree that given the current credit mess, properties expansion for trust would be hindered. However, if I am an investor looking for defensive play amid the current market turmoil, trusts shld be what I wld look into.
8. I am not a speculator looking for short term gain.
9. Why not enjoy consistent income payout now and at the same time adopt long term view to take advantage of capital gain (hopefully) in the future when the next boom cycle is back.
I just wonder how low can this Reit go?
$0.50?
$0.40?
$0.30?
I think just average down with money you can afford to loss and you shall be OK.
Even if Allco Reit sell all assets away at 50% discount, it is still worth $0.70.
$0.037 in dividend pay out means you pay $0.66 ex-dividend.
That is cheap.
Yup, with regards to raising new fund.... it affect all other Reits, Trust and all companies public or private. It does not just happen to Allco Reit alone.
I think MappletreeReit should be worth $0.50 as the gearing is 10% higher than Allco at 53%.
Uncertainty give you a chance to buy low(if not cheap), if everything so beautiful & rosy you will need to pay $2 for Allco Reit.
At such low price, it may become a take over target for Funds to quickly acquire assets from Singapore & Japan.
I bought the shares at $0.75 but it looks like its going down today ending at $0.745. I have no qualms about it going lower after ex-dividend. But is uncertain whether it will rise to fair value of $1.20 as stated by PEOM given this bearish market.
Hi Kleer,
What you think of this news ?
How will this affect Allco and your recommendation ?
"Allco Reit could divest its interest in its Australian properties which are currently valued at A$482.9 million (S$619.3 million)."
Cheng Hwee
Hi Cheng Hwee,
DBS Vickers has the following take on the issue:
MAIN POINTS
Unlocking its asset values
Story:
Allco REIT has announced that I) Allco Principals Investment Pty Limited (API) has been served a receivership notice. While API does not have a direct stake in Allco REIT, it holds 51% in the REIT manager and has an income support arrangement totaling A$8m till Mar’09. Separately, Allco REIT also announced a strategic review in of its portfolio, which may result in a divestment in its Australian properties.
Point:
In our view, both this events could have a slight dilutive impact on earnings in the near term. The loss of income support agreement is possible given that it is unsecured. Therefore, we have cut our DPU forecastsby 5% in FY08 and FY09 to 6.7cts and 7.0 cts respectively. In addition, while we view that it could be a good time to divest its Australian property given the toppish office cycle, interest savings from paring down debt is unlikely to offset the vacuum in earnings in the near term. Our sensitivity analysis of a sale of Central Park indicates a base case scenario where we have assumed management to use sales proceeds to repay its existing debt facilities further erodes DPU by another 10%. Management has also indicated that it could look to diversify into Malaysia to boost forward income streams. However, no timeline is indicated.
Many know that ALLCO has higher gearing ratio that comes with larger debt obligations. With the proposed divestment of its Australian assets, I see this move as +ve. Even with decrease in DPU as a result of the divestment, ALLCO is still seen as attractive compared to other REITS. I will continue to buy more if ALLCO share price is under selling pressure in the next few months ahead should US credit crisis continue to worsen. Currently, ALLCO is still lingering around +/-80cents range.
Moody downgrades ALLCO to Ba1 rating. Further downgrades possible. This news is definitely dissappointing at this point of time when the global financial market is still uncertain. I am very dissappointed with ALLCO management and I have since withdrew as an investor. With the downgrade, it seems hard to attract institutional interest in ALLCO in my pt of view. :(
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