Don’t venture into the woods
For the June 2015 year-end York has a stated tangible net asset value (TNAV) of 735c while the share is trading at around 250c – a massive discount that has attracted a lot of interest.
But two issues must first be considered for the TNAV. How is it determined and will the gap ever close?
In the case of York, most of this TNAV is made up of what it calls biological assets – its trees. It discloses very clearly how it gets to the valuations for the trees. But some tweaks to the calculations can adjust TNAV either way. For example: York uses a cost of equity of 15.28%, yet its long-term return of equity is under 10%. This is a serious mismatch, which suggests the trees (and hence TNAV) are overvalued. The second issue: will this discount to TNAV ever close? The evidence is that it never has and I can’t see what would trigger it closing and pushing the stock higher. With these two uncertainties I would not invest.