For the many new investors that have hit the markets since the start of the coronavirus pandemic, it can be quite difficult to find good value shares to buy. On one hand you have the skyrocketing valuations of companies like Afterpay Ltd (ASX: APT) which, at the time of writing, has a valuation marginally less than Santos Ltd (ASX: STO) and Origin Energy Ltd (ASX: ORG) combined. On the other hand you have companies like Ansell Limited (ASX: ANN) which is a great company, but trading at 10 points above its 10-year price-to-earnings (P/E) average.
I think the companies below represent very good ASX shares to buy right now. They are both in the real estate space, and each one has a market cap less than its book value. Book value refers to total assets minus intangible assets and liabilities. It is also called the net asset value.
Theoretically, this means that if you had a spare billion dollars lying around, you could buy one of these companies and immediately sell all of its assets for a profit.
A great office share to buy
Centuria Office REIT (ASX: COF) is a great ASX share to buy and Australia’s largest ASX-listed pure play office REIT. I believe that office real estate has been the least impacted by the coronavirus pandemic thus far. A report on residential real estate from the Australian Bureau of Statistics (ABS) shows that new approvals for total dwellings was down by 16.4% compared to April. In addition, GPT Group (ASX: GPT) reduced the value of its retail assets by $476.7 million, or approximately 8.8%, in response to a re-valuation. This was before the second wave of the virus hit Victoria. I expect retail assets to be even more devalued due to the current uncertainty.
Centuria Office has an occupancy of 99.2%. Importantly, the company has a weighted average lease expiry, or WALE, of 5.1 years. In addition, it manages a portfolio of high quality office assets worth $2.1 billion. At the time of writing, the company has a market cap of $1.05 billion – half of the value of its real estate portfolio.
At its current price, Centuria Office has a trailing 12-month dividend yield of approximately 8.73% and is trading at a P/E of 13.42. This is lower than it has traded in the past five years. I think this is a great share to buy and I am contemplating investing in it personally.
Storage assets are king
Abacus Property Group (ASX: ABP) is another ASX share to buy that is undervalued, in my opinion. It is an Australian real estate investment trust, or A-REIT, like Centuria, however it is diversified. According to the company’s portfolio statement, it has a balance sheet of $3.3 billion in total property assets as at H1 FY20, a significant increase from FY19.
This breaks down into approximately; 50.6% in office buildings, 34.4% in storage space, 6.8% in small convenience shopping centres, and about 8.2% in non-core assets.
While I remain concerned over the impact to retail, it is only a small percentage of the company’s portfolio. Both office assets and storage assets have been resilient in the current pandemic. Furthermore, Abacus has begun to show a growing interest in accumulating storage assets. Recently it increased its holding in rival National Storage REIT (ASX: NSR) to 8.09%. This is part of the organisation’s move to a recurring annuity type income stream, instead of its previous value-add model. An approach that will result in less volatility in earnings.
At the time of writing, Abacus has a market cap of $1.81 billion. This is 45.2% lower than its stated portfolio value. In terms of net asset value, it is worth $3.41 per security, while the current share price is $2.77 per security. The company also has a trailing 12 month dividend yield of 6.68%.
I think this is one of the better value shares to buy on the ASX today.
Finding cheap shares to buy is difficult, however the price to book ratio is a good starting point. To illustrate further, compare the value of the company’s net tangible assets, against its current market capitalisation. However, this is only the beginning. You also need to make sure that the business has a solid operating model, and that management is making good decisions. This is more important than ever as we find ourselves in an unprecedented level of uncertainty.
These 3 stocks could be the next big movers in 2020
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In this FREE STOCK REPORT, Scott just revealed what he believes are the 3 ASX stocks for the post COVID world that investors should buy right now while they still can. These stocks are trading at dirt-cheap prices and Scott thinks these could really go gangbusters as we move into ‘the new normal’.
*Returns as of 6/8/2020
Motley Fool contributor Daryl Mather has no position in any of the stocks mentioned. 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 Scott Phillips.