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Is this the cheapest stock on the ASX?

Payce Consolidated Limited (ASX: PAY) today reported a full year net profit of $84.3 million – on revenues of $378 million – and appears to be one of the cheapest stocks on the ASX.

If you can get hold of any shares in the property developer that is.

Just 4,900 shares from one seller were up for sale as I write, despite 8 buyers offering to buy more than 80,000.

The company clearly struggles with liquidity in its shares, but patient investors might want to keep an eye on the company for a number of reasons outlined below.

  • With a market capitalisation of just $188.5 million and a net profit of $84.3 million, it effectively means Payce shares are trading on a P/E ratio of 2.2x. By comparison, the market averages around 15x, with cheap shares often having P/E ratios under 10x.
  • The company says its net tangible assets per share at the end of June 2016 is $10.16, compared to its current share price of $9.50.
  • Chairman Brian Boyd, holds 9.9 million ordinary shares – around 49% of the total issued and 1.245 million preference shares.
  • There is a proposal to take the company private from entities associated with Brian Boyd, offering $12.60 per share in cash, an unsecured 6.5% 2-year Note or any combination of both. At the current share price of $9.50, that’s a 33% potential gain – if you can get hold of shares that is. And by the way, those 4,900 shares current for sale, the seller wants $12.40 for them each.

The one major issue is that there are 9.9 million outstanding preference shares which appear to be in limbo – with no offer appearing for them.

There are also some other issues that mean Payce is probably not the cheapest stock on the ASX. For one, the net profit of $84.3 million includes $72 million of paper gains on investment property and a one-off sale of an investment which realised $31.6 million.

Still, the 32% potential gain (if investors could buy shares in the company at the last traded price of $9.50) appears tantalising. However, it’s unlikely that current shareholders will sell out for much less than the offer price and investors might never be able to get their hands on enough shares at the right price to make a profit.

For those wanting exposure to the property market, Tamawood Limited (ASX: TWD) is a much easier, more liquid investment, while Cedar Woods Properties Limited (ASX: CWP) also appears cheap and both are paying big fully franked dividends.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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