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United Overseas Australia: Value hiding in plain sight?

United Overseas Australia Limited (ASX:UOS) announced its full year result on 28 February 2012.

The profit result was heavily boosted by over $65m in unrealised gains.  The effect of this can be seen through the jump in the value of investment properties on the balance sheet. The investment property portfolio is underpinned by gross rental of $29m per annum.

A dividend of 1.5 cents per share was declared.

Solid balance sheet

Once again, investors were presented with a rock solid balance sheet:

Cash $308m
Receivables $84.9m
Inventories $228.5m
Land held for property development $25.4m
Property plant and equipment $23.1m
Investment properties $537.9m
Total of Asset Items above $1,207.8m
Financial liabilities $128m

A clearer picture

UOS’ financial records include the full results of the company’s 66% owned subsidiary, UOADB, on a fully consolidated basis.  UOADB is a public company listed on the Malaysian stock exchange.  Since UOADB reported its 4th quarter results on 24 February 2012, we can now compare the balance sheet of the two entities as at 31 December 2011, to try to get some idea of the nature of assets held purely by UOS.

Using a consistent exchange rate of 3:1 for the Malaysian Ringgit to Australian Dollar, we believe UOS parent holding company has assets and liabilities that look something like this:

UOS Parent
Cash $204m*
Investment Prop $322m
TOTAL ASSETS $526m*
Liabilities $126m
NET ASSETS $400m*

*In January 2012, UOS paid about $80m as a capital return.  This would have reduced cash.

Sum of Total Assets

On top of these assets, we can easily calculate the value of UOS’ public listed subsidiaries. UOS’ 66% holding of UOADB at current market capitalisation is about $400m.  UOS’ 46% holding of UOA REIT at current market capitalisation is about $90m.

Thus, the total sum of UOS’ net assets and subsidiaries is a cool $890m, out of which about $200m is held as cash at head office.  The market capitalisation of UOS is about $470m. Subtracting cash held at head office, Mr Market is saying that UOS’ investment properties and its public listed subsidiaries are worth a relatively small $350m on the ASX, even though it is worth close to double that amount on the Malaysian share market. Bear in mind that gross rental per year is now $29m, and to put this in perspective, the ratio of gross rental to market capitalisation of UOS is 6.17%.

The Foolish bottom line

The current share price of UOS, even after recent increases, contains a substantial margin of safety.  Investors are getting a portfolio of investment and development properties at half market values, and this portfolio is managed by a management team with a track record in excess of 20 years of delivering above average returns to shareholders.

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Fool contributor Peter Phan owns shares in UOS. The Motley Fool’s purpose is to educate, amuse and enrich investors. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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