Permit me to go back to memory lane.
On Cache - the main reason is inline with the out-performance of REIT sector as a whole. However, my hunch is that Cache could be an under-performer in the REIT space.
One CWT, the acquisition of MRI could have held back its performance:
http://info.sgx.com/webcoranncatth.nsf/V...E00688CB7/$file/Presentation_Acquisition_of_MRI.pdf?openelement
To me, CWT can be viewed as 3 different businesses:
(i) existing core business of Logistics and engineering services;
(ii) an originator of REIT assets - previously fed into Cambridge but now into Cache;
(iii) MRI, swiss based commodities trader that was acquired back in 2011.
The main core businesses are doing well but not well appreciated due to the black box in MRI that is not viewed favourably after NOW stocks fell out of favour.
Note that recurrent business is trading at less than 10 times PER based on FY12/12 estimates.
The REIT asset light business can be valued on the potential profits to be booked should CWT decide to offload into Cache. On a more optimistic basis, CWT can be valued along the lines of ARA, Capmall Asia or even Capland. However, such comparisons must be tempered by CWT's small asset base even though they are amongst the biggest owner of logistics centres in Singapore and hence an applicable discount in ratings is warranted is the latter methodology is adopted.
That leaves MRI. So far MRI has yet to live up to market expectations . In fact, MRI appears to be on a consolidation phase post CWT takeover.
A review of the terms of acquisitions reveal a phasing in period following the takeover. CWT paid the initial consideration of US$60.8m upfront with the balance of US$33.2m in each of 30 June to 2012, 2013 and 2014. In fact, following the initial 73.8% stake, CWT has progressively increased its stake to well over 95%.
There is no doubt that trading business is a highly capital intensive and thin margin business. In the light of concerns sparked by NOW, market is inherently apprehensive of MRI's potential.
I personally think that market has been overly pessimistic over MRI so much so that it overlooked CWT's strength in core business and its ability to book profits should it decide to go asset light.
While I am not going to over pay for trading business, giving no value to a trading business that is in a transition phase isn't fair as well. However, in this case, market appears to even overlook the profits to be booked on asset light strategy - this I think has led to the undervaluation and the unloved characteristics.
CWT - overlooked stock?
Vested