Richard Simmons presented his in-depth investment theses on Daejan Holdings (UK: DJAN) and S & U (UK:SUS) at European Investing Summit 2017.
Daejan is a property-owning company (75% UK, 25% US; 54% residential, 46% commercial). Property is primary or secondary, often in central locations and almost all freehold or long leasehold. Daejan is a gradual grower, relying on rent increases, upgrades in the existing estate, small acquisitions, and limited development. Over a full cycle it returns 10-12% in NAV growth, dividends included. The balance sheet is extremely conservative. Daejan is priced at 58% of NAV, a discount of 42% to its fully realizable immediate value. Daejan has an inside value because one might sell it if it traded up to NAV, leaving only the ongoing 10-12% return on NAV.
S & U (UK: SUS) is a used car finance company. It has a long history and a long runway. Used car finance is currently in bad taste because of the belief that there is a consumer debt bubble, partly concentrated in the auto market. S & U is UK-only and does not write personal contract purchase (PCP) loans, so it is somewhat isolated from the main issues. Through cautious underwriting it manages an ROA of 10+%, compared to a very good bank target of 2%. Leverage, as measured by total assets to total equity, is below one-and-a-half times, compared to a very good bank ratio of ten times; but this is enough to push ROE to 15%. S & U trades below ten times forward earnings. S & U has an outside value because even if the share price doubled, bringing the forward P/E to less than 20x, the ongoing 15% (and growing) return on NAV would still be attractive.
About the instructor:
Richard Simmons joined Credo as an Investment Manager in 2001. He discretionarily invests managed accounts and is the Investment Adviser of a Cayman fund, Derby Street Investments. Before becoming an investment manager he was a banker for eleven years. He was educated at Oxford and Cass Business School and is the author of “Buffett Step by Step”.
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