BWF 1.01% 50.0¢ blackwall limited

Sifting through the detritus

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    Arguably, no sector has been beaten up more by the economic shutdown than the commercial property market.

    So I thought I'd do a bit of sniffing through the rubble of the listed property sector ruins.

    I found this small, but relatively complex, little company to be very interesting indeed from an investment opportunity.

    I'd known of Blackwall for some years, but didn't really know much about it until I started doing some proper analysis on it in recent weeks.

    My findings are as follows:

    It's last-reported NTA (31 Dec 2019, which is before any adjustments that are required...more on this later) was around $29m  (46cps).

    But that included $9.6m (15.2cps) of Net Assets related to workspace-sharing venture, WOTSO (since de-merged from BWF, with BWF retaining a 14% stake, which has a carrying value of $5m).

    BWF's largest asset is the 11.5m shares it owns in the Blackwall Property Trust, (ASX Code:  BWR.)

    At BWR's current 130c price, that stake is worth $15m  to BWF (~24cps)

    But the assessed NTA of BWR @ 31 December, 2019 was 156c.
    In BWF's accounts that would equate to  $1.56 x 11.5m shares = $17.m (~28c per BWF share).

    Of course, given what has happened in the world over recent months, it would be naive to think that the value of BWR's portfolio of properties is not now lower.   Ditto for the WOTSO carrying value.

    So what I've done is assessed NTA's for BWF across three scenarios:

    1. OPTIMISTIC:  This uses the last-reported accounts for BWF and BWR, with BWR carried at its reported NTA of 156c, and adjusting for the WATSO de-merger in BWF's accounts, but still valuing BWF's 14% stake in WATSO at $5m

    2. SCHORCHED EARTH:  This applies a 25% reduction to the BWR and WOTSO carrying values (i.e., it values BWR at a conservative $1.17/share, compared to the current share price of $1.30/share.   The last time BWR traded at that level - apart from in the throes the recent market collapse - was in 2015, when it was a somewhat different company.)  

    3. "REALISTIC": This uses the current market value for BWR (i.e, $1.30) and a 15% reduction in the WOTSO carrying value.

    BWF Valuation.JPG

    As can be seen, the current value of the company appears to be factoring in some kind of a worst-case scenario, while under a "reasonable" consideration, it is trading at a ~10% discount to my assessment of its realistic NTA of 32cps.

    But the valuation assessment doesn't end there: none of that NTA-based scenario work includes the ongoing operating business, i.e., the property asset management activities, which are really BlackWall's IP and which generated EBITDA (excluding performance fees) of $1m, $2.6m and $1m in, respectively, FY2018, FY2019, and 1H2020.

    So we have an asset management business doing around $1.5m to $2m pa in EBITDA; capitalising that at an EV/EBITDA multiple of a modest 8x yields around $14m in enterprise, and equity, value, (or around 22cps)

    Including performance fees, BlackWall EBITDA was $7.9m, $2.4m and $0.5m over those respective periods, but for the sake of conservative-ness we'll assume that performance fees will average only $1m pa, equivalent to annualising DH2019's low figure.   Capitalising those on an EV multiple of just 2 times yields $2m (~3cps) in additional value from this earnings stream.

    So, I have NTA backing of 32cps + Asset Management Income value of 22cps + Performance Fee Value of 3cps,  giving a total fundamental value of somewhere around 55cps to 60cps.

    Of course, by its very nature and the somewhat broad assumptions that are required to be made, this kind of exercise can never be considered to be prescriptive; rather it is purely indicative that the stock is significantly undervalued;  perhaps not by 100%, as the numbers herein indicate, but still very much heavily undervalued.

    (Note:  It's notoriously illiquid, and some tax-loss selling in coming weeks will probably continue to present volume on the offer.)
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