Sunday, January 3, 2010

Metlifecare: Its Assets could be worth more under better management

It is interesting what you might find when trawling through company reports for some reason other than the one you eventually find more interesting. This is the case with Metlifecare Ltd [MET.NZ] as I was looking through their 2009 Annual Report.

As you digest the fruitless 2009 they have had, along with incentives still paid to directors who managed significant losses in 2009 and 2008 one comes across one of the most interesting things in their bloated 80 page advertisement for their directors (most NZX companies are guilty of using ten words when one would do and including unnecessary things like director bios and what they might do in the weekends in absence of hard easily understood data), the net tangible asset (NTA) backing per share - incidentally it can be found on page 75.

The NTA is roughly speaking what shareholders would get if the company were wound up and sold. With Metlifecare their assets, which are mostly in property, are difficult to assess in todays uncertain property market but NTA can be one good indication of what a company is worth if sold in part of outright.

Metlifecare's NTA was a staggering NZ$3.54 as at June 2009 while its shares traded at around $1.80 per share!

At close of trading last Thursday Metlifecare shares were trading at $2.30. Still a significant discount to its asset backing.

This tells us a number of things. Firstly the company is worth more either in part or whole being sold outright and it also tells us that management are not extracting full value for shareholders because they are running the shareholders business in a very poor manner.

It could also indicate that management and or their accountants Price Waterhouse Coopers and their valuers have grossly overvalued their properties in today's repressed property market, so beware before you jump on board the MET bus.

Ryman Healthcare [RYM.NZ] which is Metlifecare's listed successfully run rival, has an NTA of 86c per share with a $2.08 share price by comparison but has managed a record half year profit for 2009.

If asset valuations can be trusted, this company should be on anyone's watchlist as a pure play in the hope that someone decides to sniff around and pick up all or some of the company and salvage it from its mediocre management.

Disclosure : I own RYM shares in the Share Investor Portfolio.

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c Share Investor 2010