Insanely cheap, page-61

Insanely cheap... for a reason?!?

I probably have to agree with much of what baldynumbrs has to say in the above post.

I wanted to better understand NEW, given the meaningful NAV/share price discrepancy.

Two things I have a problem with:

1.) The entire rationale for selling off some assets was to demonstrate that the NAV is "real" and thereby closing the gap between the languishing share price and the lofty NAV. But what have we got? On 24 June 2020, NEW announces the 50% interest sale in Mount Signal 2 Project.

At first, this sounds great, as they are selling it for US$52m, when stated NAV was US$50.25m.

Alas, we then learn that of the US$52m a hefty US$2.2m in transaction costs will have to be deduced upon successful sale contract completion, leaving proceeds of US$49.8m, some US$0.45m BELOW stated Net Asset Value... damn!

But wait, there is more! If anyone can be bothered to keep reading the announcement, we learn that only US$47m in funds will be received upon completion of the transaction, with a whopping US$5m payment only received a year later, conditional on non-disclosed performance hurdles.

Call me harsh, but to me that reads like a double fail: Firstly, at best, the asset is actually being sold just below stated NAV and if the non-disclosed performance hurdles are not met, then the asset is sold at a SIGNIFICANT discount to NAV. Secondly, we will not know whether or not the asset sale will fetch close to or significantly below NAV for at least 12 months until after completion of the transaction.

To me, this sort of defeats the purpose of the asset sale, which was to - presumably promptly - demonstrate that the NAV is "real".

I guess, what management is telling us is: "trust us, we will easily beat the performance hurdles and receive the full US$52 rather than the US$47m".

Which brings me to my second problem...

2.) Listening to the FY2019 results presentation, I was a little bit alarmed at slide 18. The "Fair Value Bridge" highlights a methodology change in valuation, which results in a US$4.6m NAV uplift. Without this "free kick", NAV would have actually seen a U$5.4m decline between 2019 vs 2018. I do not like it when companies suddenly apply different valuation methodologies or present their results differently - ESPECIALLY when the changes make the reported result look better. If a company wants to re-state valuations, I would expect them to show at least the last 5 years of results re-stated by the new valuation method, so the impact of the methodology change can be better understood over time.





My point 2.) would be less of a problem, if it was not for point 1.). In point 1.), my conclusion was that management was asking me to trust them, but point 2.) makes that so much harder.

Maybe I will wait 12 months to see if the performance payment for the 50% stake in Mount Signal 2 is received... maybe I will have moved on by then (in either sense of the word).