"I was just wondering if you have any opinion, or do any modelling for SOL ??
It seems that about the time the Perpetual issue was resolved, price has responded very positively."
Apologies for responding only now, but I have been out of circulation for a few weeks.
Yes, I do keep a watching brief on SOL (and its conjoined smaller sibling, BKW).
SOL holds little appeal for me as an investment, given:
1. ~22% of SOL's NTA is comprised of its interest in NHC, and I'm strongly disinclined to own resource stocks, especially after they have doubled in the preceding 12 months and risen by 70% over the past 6 months!,
2. 26% of SOL's NTA is represented by its interest in TPM which is a company that looks like it is making waves in the telco market, but the fast-moving telco sector falls outside of my circle of competence (which is decidedly not fast-moving);
3. ~10% of SOL's NTA is comprised by its listed portfolio, which I could probably replicate by buying a few banks and an index fund, and
4. ~16% of SOL's NTA is represented by its interest in BKW, which I can also by myself if I was inclined to do so.
In summary, almost 75% of SOL's apparent value is made up of stuff that I either don't like, don't understand, or can buy myself, independently of SOL, if I so wished.
So if you are asking me if SOL, per se, is fundamentally undervalued, then I'm afraid I wouldn't be able to tell you. It kinda gets down to whether or not NHC and TPM are cheap and, as I said, I'm not smart enough to know that.
So, SOL is not one that is for me.
Of course, if your question was whether or not BKW is cheap: there I have a clearer view.
It certainly appears to be. Possibly meaningfully so.
(Just as @johnnym2 and @timbowls have been discussing few weeks back).
Coincidentally, over the past few days a number of investors I speak to from time to time have made mention of the BKW apparent under-valuation.
I'm sure they won't mind me sharing some of the ways I evaluated BKW:
1. By updating its NTA (using the inputs from previous presentation, but marking-to-market BKW's investment in SOL).
Like other posters have proffered on this thread, BKW is trading at a ~35% discount to its updated NTA. (ie., ~55% theoretical upside potential)
2. By Applying a modest 6x multiple to BKW's Mid-Cycle Operating Earnings (Building Materials and Property Development) of $100m (for context, in FY2018 BKW's Operating Profit was in excess of $160m), and then solving for the Implied Value of BKW's investment in SOL.
In this case, BKW is trading at a 28% discount to fair value (i.e, 38% potential upside).
3. Extending 2. above to find an implied value for SOL from BKW view, stripping out the market values of NHC, TPM, and BKW itself, and then solving for the implied value of the "Other" assets in SOL's portfolio (i.e, the stuff for which mark-to-market updates are not possible), and comparing this to their last-stated values (i.e., in 29 Sept 2018 presentation).
On this basis, SOL's "Other" assets (i.e., excluding NHC, TPM and BKW) were valued at less than $200m, compared to their last-stated carrying value of $1.75bn, so of the order of magnitude of 11 cents in each dollar.
4. By adjusting BKW's investment in SOL downwards by 50% of NHC and 20% for TPM (i.e., saying NHC is 50%, and TPM is 20%, overvalued) and then solving for the Implied Value of BKW's operating businesses.
On this basis, BKW's operating businesses are valued at ~$300m, which is equivalent to 3 times mid-cycle EBIT (or, less than 2 times FY2018's EBIT ).
Of course, these are all merely different ways of saying the same thing, namely that BKW looks undervalued... definitely so relative to SOL, but even in absolute terms.
But, often "cheapness" alone is not a necessary and sufficient reason for a stock's market value to rise; often it needs a catalyst to drive it.
For BKW, I'm not sure what the catalyst might be (I am convinced it won't be any voluntary unwinding of the cross-holding arrangements).
Also, it warrants mentioning that BKW's discount to NTA can persist for long periods at a time (although it is also equally worth noting that the current discount, i.e., 35% - Refer Scenario 1. above - is at an all-time high):
All in all, there is probably a profit to be made via an investment in BKW, but the extent of the upside, as well as the timing, is hard to determine with any conviction.
It's a bit of a tough one, for mine.
(Unless one invokes the use of some sort of derivative strategy whereby one purchases BKW and shorts SOL... but I'm too old - lazy, more like it - for that kind of thing, which requires a degree of ongoing monitoring.)
(20min delay)
