BlueWhale, I'd say that it was, but it might no longer be...

BlueWhale, I'd say that it was, but it might no longer be sufficiently interesting given the risk (small, admittedly) that it entails. First, understand that if you take 20 long positions at random, you will probably make money. Take 20 short positions at random, you will probably lose money. Markets tend to go up. Shorters tend to lose. In addition, it costs you money to maintain a short position, so any profits have to get over the hump of those costs.

Borrowed shares may also get called in, forcing you to exit the position at a moment not of your choosing. This is not an insignificant risk either.

In short, don't short unless you REALLY know what you're doing.

The BKW/SOL long/short pair is, however, a natural hedge. If you're short doesn't work out, your long almost definitely will, so the risks typically associated with shorting are very significantly mitigated. However, you still have borrowing costs for the short position: currently stuff all, but these can swing wildly. And your position can still get called in unexpectedly.

If BKW and SOL rise in lockstep, you will neither make nor lose money, but your costs of maintaining the position will go up as more collateral is required.

These risks being disclosed, the fundamentals of it are still relatively interesting. Today, BKW is $15.91, SOL is $22.11. At these prices, when you buy those BKW shares, you're getting $13.95 worth of SOL shares for every BKW share. This values Brickworks' non-SOL assets at only $1.97. The real value of those assets is probably around $6.50 to $7 per share.

So you're getting a bargain. But in the scenario I described above, you got paid quite a lot of cash when "buying" these assets. Now the cash is flowing the other way - you have to pay the $1.97, putting the "buy" back into "buying".

So I guess this trade offers you the opportunity to buy BKW's property and brick manufacturing assets for about a quarter to a third of their fair valuation. Weigh the attractiveness of this against the risks I set out above according to your personal investment preferences.

Another thing to keep in mind is that just because these assets are currently undervalued by the market DOES NOT mean they will be fully (or over) valued at any time in the foreseeable future. If you are interested in the long term dividend stream from these assets, this trade may be more interesting. If you're waiting for the market to "correct" this aberration, well, recent history suggests it could go a long way in the other direction first. If this happens, you'll need lots of margin available to wait it out, and your borrowing costs will go up.

While this is quite a sophisticated investment, one thing I would more widely counsel all prospective SOL investors to consider is simply to buy BKW instead. $10,000 invested in SOL today gets you $10,000 worth of SOL. $10,000 invested in BKW gets you $8766 worth of SOL. But you also get about $4200 worth of BKW's other assets as well.

Whatever its underlying fair value may actually be, yes, SOL is still materially overvalued relative to BKW. BKW represents a heavily discounted backdoor ownership of SOL. If you like SOL, go buy BKW.