#deep value

Investment Thesis

Bluerock Homes Trust Inc. ($BHM) represents an attractive investment opportunity in the single-family rental (SFR) market, currently trading under book value and below its cash holdings. The company's growing portfolio in the desirable Sun Belt and West Coast regions, coupled with increasing rental rates, positions it well for long-term growth. Moreover, the demand for rental properties is underscored by large institutional investments, such as those by BlackRock. This article explores why $BHM is a compelling buy for value-oriented and growth-focused investors.

Company Overview

Bluerock Homes Trust Inc. is a real estate investment trust (REIT) that specializes in single-family rental homes. BHM focuses on acquiring, renovating, and managing high-quality rental properties in high-growth markets across the United States, particularly in the Sun Belt and West Coast regions. The company's strategy aims to provide stable and growing cash flows through a combination of rental income and capital appreciation.

Valuation Analysis

One of the most striking aspects of BHM is its current valuation. The stock is trading at close to a 30% discount on cash and at a more than 50% discount to its book value. Specifically, BHM has about $99 million in cash and cash equivalents, and the book value per share stands at $37.24, while the current trading price is significantly lower. Additionally, BHM trades at just under 9 times its free cash flow, making it an attractive valuation for investors.

Portfolio Growth in Desirable Regions

BHM's portfolio is concentrated in some of the most desirable and high-growth regions in the United States, including the Sun Belt and West Coast. These areas are experiencing robust population growth, economic expansion, and increasing demand for rental properties. The company's strategic focus on these regions positions it to benefit from favorable demographic and economic trends.

Increasing Rental Rates

Rental rates across BHM's portfolio have been on an upward trajectory, reflecting strong demand and limited supply in the single-family rental market. Year-over-year increases in rental rates have bolstered the company's revenue and supported its growth strategy. This trend is expected to continue as more individuals and families opt for renting over homeownership due to rising home prices and economic uncertainties.

Institutional Demand in the SFR Market

The single-family rental market has attracted significant interest from large institutional investors, such as BlackRock, which are increasingly investing in apartment REITs and single-family rentals. This institutional demand underscores the attractiveness and potential of the SFR market. BHM stands to benefit from this trend as it highlights the stability and growth potential of rental properties as an asset class.

Financial Performance and Growth Prospects

Bluerock Homes Trust Inc. has demonstrated solid financial performance, with consistent revenue growth and healthy operating margins. Key financial highlights include:

Revenue Growth: Driven by strategic acquisitions and high occupancy rates, BHM has consistently reported strong revenue growth.

Operating Efficiency: The company's focus on efficient property management and cost control has supported its profitability.

Attractive Dividend: As a REIT, BHM is committed to returning value to shareholders through dividends, offering an appealing yield for income-focused investors.

BHM has over $480 million in real estate assets and holds $99 million in cash and cash equivalents. The company's debt structure is also favorable, with only $1.32 million in short-term debt, which it has more than enough cash to pay off. Most of its debt is long-term, standing at about $234 million, indicating a manageable debt profile.

Looking ahead, BHM's growth prospects are promising. The company plans to continue expanding its portfolio through strategic acquisitions in high-demand markets. Additionally, its emphasis on operational efficiency and market expansion will drive future growth and enhance shareholder value.

Risks and Considerations

While BHM presents a compelling investment opportunity, it is essential to consider potential risks:

Market Volatility: Economic downturns and fluctuations in the real estate market could impact rental demand and property values.

Interest Rate Risk: Rising interest rates could increase borrowing costs and affect the company's profitability.

Regulatory Risks: Changes in housing regulations and policies could impact the company's operations and financial performance.

Conclusion

Bluerock Homes Trust Inc. ($BHM) offers a unique value proposition in the single-family rental market. Trading under book value and cash holdings, with a growing portfolio in high-demand regions, BHM is well-positioned for long-term growth. The company's increasing rental rates and the growing interest from institutional investors further underscore its potential. While there are risks to consider, BHM's strategic focus and financial performance make it a compelling buy for investors seeking exposure to the residential real estate sector.

References:

Zacks Investment Research on BHM Valuation

Real Estate Market Report by CBRE

BlackRock's Investment in SFR Market

❤️ Like this post to support our work ❤️

New Post has been published on http://undervaluedstocks.info/2833-2/

Murakami (Tokyo; symbol “7292”) looks undervalued to us.

Murakami is an industrial company with more than a century of business operations. According to the company’s website, it has three business segments:

Automotive mirror systems appears to be the most important business.

Opt-Electronics is a new business and represents an effort to leverage the company’s automotive mirror systems expertise to enter into other, related markets.

Other Businesses are a variety of endeavors including glass construction materials, sale of raw materials for resin, logistics, transport and temporary staffing.

The company’s businesses appear mature. Growth has been moderate in recent years.

The balance sheet appears very strong. As of the most recent quarter, the company had 47 billion Yen of equity supporting 67 billion Yen assets. Liquidity was excellent with a current ratio of 2.9.

The company has 13.1 million shares outstanding. Cash per share is 1,601 Yen as of the most recent quarter. This compares very favorably to a stock price of 1,910 on November 14th, 2016.

The company’s businesses produce solid cash flow over time. Cash from operations is about six billion Yen per year. Capital spending on property, plant and equipment averages about four billion per year, leaving free cash flow of about two billion per year (approximately 150 per share).

The valuation appears compelling. The Price-to-Free-Cash-Flow ratio (P/FCF) is about 13 if one uses the results for the past five years. If one deducts the value of cash from the stock price, the P/FCF ratio falls to just 2x – very compelling in our opinion.

The stock has no obvious catalyst to trigger a significant revaluation in the near term. In addition, Japan’s sub-par economic performance over the past decade or two is well known. However, change is afoot in Japan. The Stewardship Code of 2014 and the Corporate Governance Code of 2015 are encouraging Japanese companies to become more focused on improving shareholder returns. Management teams are increasingly accountable for taking proactive steps to improve returns. Major institutional shareholders are also increasingly accountable for exercising more vigorous oversight over the companies in which they invest.

With a strong balance sheet and a deeply undervalued stock, Murakami has some obvious opportunities to increase shareholder value:

A stock repurchase program

Recapitalizing the company

Selling the company to a strategic buyer

In increasing value for the shareholders, we would like to see management take advantage of the undervalued stock price. They could also simply increase the dividend – there is more than enough free cash flow to increase the payout by a significant amount.

By our calculations, pretax returns on net invested capital seem reasonable in the low double digits. Based on these returns, we believe there is a reasonable case for the company to reinvest in its core businesses. However, we think buying back stock at these levels is a better use of the shareholders’ money. The company appears to be doing so, but at a very slow pace. Perhaps they will step up the repurchases in the future.

One can buy Murakami through a broker like Interactive Brokers.

New Post has been published on http://undervaluedstocks.info/fukuvi-chemical-industry-cheap-ignore/

Fukuvi Chemical Industry - too cheap to ignore!

Fukuvi Chemical Industry Co. Ltd. (TSE:7871) is one of those stocks that is just too undervalued to ignore.

Fukuvi is a diversified industrial company. Founded in 1953, it has stood the test of time. According to the company’s website, it has three business segments:

Interior residence materials, exterior decorative materials and apartment building flooring systems.

Resin parts used in a wide range of application such as residential equipment, office equipment, consumer appliances, etc.

Manufacture and sale of precision chemical products, including artificial marble, precision resin products, etc.

The company’s businesses appear mature. Growth has been minimal in recent years.

The balance sheet appears strong. Here are the highlights as of June 30:

Current assets: 32.108 billion yen ($311.23 million).

Noncurrent assets: 12.337 billion yen.

Total assets: 44.446 billion yen [ = (1) + (2) ].

Total liabilities: 17.464 billion yen.

Net current asset value: 26.982 billion yen [ = (1) – (4) ].

The company has 20.7 million shares outstanding. Thus net current asset value per share is 707 yen. The stock traded at just 486 yen on Monday. That’s a 31% discount to net current asset value.

The company has 10.726 billion yen in cash, or 518 yen per share. Cash per share exceeds the stock price.

The company’s businesses produce solid cash flow over time. Cash from operations has averaged more than 2 billion yen per year. Capital expenditures have been in the 800 million to 900 million yen range. Thus free cash flow is typically about 1.100 billion to 1.200 billion yen per year, or roughly 55 yen per share. The stock trades at just 8.8x free cash flow per share.

The stock has no obvious catalyst to trigger a significant revaluation in the near term. In addition, Japan’s subpar economic performance over the past decade or two is well known. However, change is afoot in Japan. The Stewardship Code of 2014 and the Corporate Governance Code of 2015 are encouraging Japanese companies to become more focused on improving shareholder returns.

Management teams are increasingly accountable for taking proactive steps to improve returns. Major institutional shareholders are also increasingly accountable for exercising more vigorous oversight over the companies in which they invest.

With a strong balance sheet and a deeply undervalued stock, Fukuvi has some obvious opportunities to increase shareholder value:

A stock repurchase program.

Recapitalizing the company.

Selling the company to a strategic buyer.

In increasing value for the shareholders, we would like to see management take advantage of the undervalued stock price. It could also simply increase the dividend – there is more than enough free cash flow to increase the payout by a significant amount.

New Post has been published on http://undervaluedstocks.info/classic-graham-dodd-net-current-asset-value-opportunity/

A Classic Graham & Dodd Net Current Asset Value Opportunity

Years ago, Benjamin Graham made a case for investing in stocks that trade below net current asset value. According to Graham, assuming that a company has a reasonable earnings track record and future prospects, paying no more than two-thirds of net current asset value per share ought to be a good deal for the investor. In the past, Warren Buffett and Joel Greenblatt have used this investment strategy or variants thereof.

How does one calculate net current asset value? One subtracts from current assets a company’s total liabilities. Such a calculation likely is very conservative, as it assigns no value to a company’s non-current assets such as property, plant and equipment.

A criticism of this strategy is that such opportunities are few and far between. They may have been commonplace many decades ago but one may see them only in the depths of a nasty bear market. If one appears under normal market conditions, then the company more often than not suffers from deep fundamental problems that make an investment too risky.

If one looks overseas, however, one can find quite a few stocks trading at substantial discounts to net current asset value. Companies with real businesses and profitable track records.

Consider Nippon Antenna Co., Ltd (OTC:NPNZF). Founded in 1953, it makes a range of products used in broadcasting and in reception, such as cable television equipment, satellite receivers, television signal receivers, antennae, marine antennae, portable phones, etc.

The company’s businesses perform reasonably well. The company has produced a recurring profit in each of the past five years. Over the same period, cash flow from operations average 789 million Yen. Capital spending has averaged 557 million Yen, leaving free cash flow of 232 million Yen.

The balance sheet appears very strong. Here are the highlights in millions of Yen as of June 30, 2016:

The company has 14.3 million shares outstanding. Thus net current asset value per share is 1,075 Yen. The stock trades at just 543 Yen on November 1st, 2016. That’s a 50% discount to net current asset value.

What are the catalysts to make the stock move higher? Nothing dramatic appears in the cards. However, the company has repurchased its shares in the past and appears to be doing so recently in a modest way. In our opinion, any repurchase of stock at this level tells us two things about management:

they probably think the stock is a good investment, and

they are willing to use at least some of their cash in a way that seems highly likely to benefit the shareholders.

Nippon Antenna appears deeply undervalued at a time when the winds of reform are blowing through Japan’s system of corporate governance. The Stewardship Code of 2014 and the Corporate Governance Code of 2015 are encouraging Japanese companies to become more focused on improving shareholder returns. In this environment, perhaps Nippon Antenna will become more aggressive about repurchasing its stock.