Nam Tai Property Inc. (NYSE:NTP) is a company that is in the middle of a transformation from an OEM to a real estate development & management company. The company owns valuable land rights in Shenzhen. I described the long term thesis a year ago on seekingalpha (http://seekingalpha.com/article/3499086-nam-tai-property-sellers-cleared-significant-upside-patient-investor). Since that article real estate prices in Shenzhen have risen by 60%. Correcting for this increase, the fair value should be well over 20 USD per share.
As I already made the case for a long term investment I will focus on a short term opportunity in this article.
I believe that there is a good chance that shares will return over 20% in a little over a month, because of the announced 50M USD share buyback program. My logic is based on the following three points:
- The share price I expect the company is willing to pay for repurchases
- The limited availability of shares
- Buyback duration and trading volume
I expect that the company is willing to pay more than 10 USD per share
There are several indicators that the CEO, Mr. Koo, believes that the shares are dramatically undervalued. He exercised options way above market prices on multiple occasions and initiated several large buyback programs/tenders offers. In addition he hires consultants on a yearly basis to value the land. Their reports value the land at over 15 USD per share. In a recent article in the South China Morning Post, Mr. Koo explains that the land rights owned by the company could be worth over 20 billion RMB (~80 USD per share). This is probably in a bull scenario where everything aligns, however anything between 15 USD and 80 USD per share in value makes the shares very cheap. On top of that the company has ~5.50 USD per share in cash.
All these indications make it very likely that the Mr. Koo (and the company) are willing to buy back shares significantly higher than today’s prices. 10 USD per share isn’t unlikely.
At an average repurchase price of 10 USD per share, a full 50M USD buyback would equal 25% of the free float
I believe that most shares are tightly held, leaving a free float of ~20M shares. If the company would fully utilize the buyback program at an average price of 10 USD per share, this would mean that the company has to buy 25% of the free float in 4 weeks.
The short period during which the buyback program will be active, will result in additional upward pressure
The company will likely be aggressive in buying back shares, seen the past buybacks, exercised options and comments in press releases and news items. Off course not at all costs. Especially since the program will only be active for four weeks and the daily trading volume is low, I believe that the available shares (at prices the company wants to repurchase for) dry up before the full 50M USD is utilized. In other words, the maximum price the company is willing to buy back shares for determines the minimum share price by the end of September.
Conclusions
I believe that the company is significantly undervalued, hence I have been long shares for a couple of years now. The planned 50M USD buyback program will be very accretive for the per share value. It also presents an interesting short term opportunity. I bought more shares and Oct ’16 call options for a short term trade.
Other links:
http://www.gurufocus.com/news/223291/nam-tai--value-idea-contest-submission (how I learned about the company, good discussion thread)
http://seekingalpha.com/article/3499086-nam-tai-property-sellers-cleared-significant-upside-patient-investor (article by me)
http://www.namtai.com/investors#investors/real_estates (valuation reports)
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