RE:Q2 out and the rest of the year look strong The issue in my mind is that the valuation gap between the book value of the equity and the market price is EXTREME. The company currently trades at 0.30x the book value of the equity. This is a very unhealth valuation disconnect.
Melcor has traded at this discount for quite a while now and say what you want about market participants not wanting to invest in Alberta, the reality of the situation is that the company has made missteps in its capital allocation and continued to sink money into underperforming acquisitions. There is a ton of excess/redundant assets on the balance sheet. Management has started to acknowledge this in both word and deed through the reports to shareholder and the disposition of assets.
The dividend yield is about 5% to 5.5% (depending on daily share price) which is about average; however, the payout ratio is very low (sub 30%).
In my mind, the Alberta market is getting stronger and they will finally have an opportunity to develop the properties they have been sitting on for the past decade and sell them into a strong market. Simultaneously, the Investment properties and REIT properties will go through a rationalization process. Ultimatley, I expect them to free up a few hundred million in capital over the next 3 years. Some of this will go to pay down debt but the balance sheet is well structured. I expect that the remainder will be available to shareholders. As I have mentioned in the past, they must find a way to deal with the REIT and Investment Properties as the current format makes no sense and is inefficient from a tax perspective.
I am of the view that Melcor really does not need to be a public company. I don't know what the ownership % would be if you factored in both insiders and employees but I would guess that it would be very high (perhaps more than 70%). Melcor is not raising equity any time soon.
If you are Brookfield you would look at Melcor and its portfolio and realize that you could buy the company for $25+ a share and make off like a bandit!
Management is clearly going through a cleanup process now and we will see where this leads us. Management also could be a buyer.
I primarily invest in Owner lead/run companies and my experience has been that nothing happens for a while and then one day a significant corporate action takes place and you get your return. I sleep well at night with this investment approach because usually the Owner is conservative and is highly knowledgeable about value creation. This is juxtaposed with "corporate" managers who despite talking a good game don't have much skin in it!
I'm very excited for what this opportunity will look like!
LR