DUPD – beginning to realise but price not rising.

Good news – time to post on another of my holdings – DUPD.

This is a highly undervalued Ukrainian property developer.  I have traded in and out over the years luckily getting some of the big rise to 2010 and missing the fall.  My  main entry was 28p back in September 2012. I have added more today at 36p giving me an average price of 31.4p.

This company has a market cap of £40.5m, on the BS today there is approximately £11m cash as at 30/6.  Add to this £3.15m paid on 24/12 from Henryland with a likely £2.2m coming later this year – giving a total of £16.35m.

In addition to this DUPD owns 12.5% of Arricano at the last traded price this is worth about £19.8m.  Now this is likely to be illiquid – so maybe they couldn’t get out at this price but then again they did manage to sell a lump of it at IPO – so maybe they could….

This gets us to £36m – just short of the market cap.

So what else does DUPD hold. Well NAV is £125m – so quite a bit more.

Biggest item on the balance sheet is prepayments for land – £31m

On IPO DUPD bought a lot of land around Kiev – at cost £75m now the Ukranian property market has collapsed – so there has been substantial impairment but the co say this is worth £31m.  I dont believe them – so lets say £20m.  Its very hard to value this – depends very much on Ukranian economy and where exactly the land is.

On top of all this they have investment properties of £21.13m lets round it down to £10m.  There are also trading properties worth £24.75m again lets say £10m.  This is very conservative as I know there have been sales at close to book value.

There are some liabilities and other assets which net off to a debit of £-7.2m.

So in total we have

Cash $27m £16.35m

Arricano $33 £19.8

Land $33 £20

Investment and trading Properties $33 £20

Liabilities -$11.95 -£7.2.

So a pretty conservative value of £63.6m vs a Market cap of £40.5

Management Fee is $3m per annum – 1.5% gross asset value of the company – creating an incentive for values to be overstated.  There is a performance fee of 20% of the increase in NAV over 10% – also 10% of the increase in the share price over £1.08.  As we are currently trading at 36p I would be happy to give the manager 100% of any increase over £1.08.

There are also other fees / expenses of approx $2.9m per annum.  Though these seem high  based on my NAV – as the real NAV is higher this may not be so unrealistic.

The company has announced an EGM regarding a change to the company aim towards a realisation vehicle.  Given the 70% loss of IPO investors I would imagine this would be approved.

Fees are also raised if we move on to termination – total of $10m between now and 31 Dec 2018.  The Manager also gets 3.5%  of any distributions up to $50m and 7% of any above this.  To me this seems like too much – how hard can it be to sell some property and distribute cash which is already on the BS ?  I dream of the day these crooks stop taking my money.

The shareholder register has 10% held by Lars Ernest Bader – who enjoys some of my other investments.  Dragon Capital also holds a fair chunk (17%). Also ELQ investors (15.5) and Goldman Sachs 14%.

Ukraine’s economy is very dodgy as are its politics – part of the reason for the discount.

I hope to make at least 50% on these over the next few years, there a realistic chance doubling my money, more than if I believe the NAV (which I dont).