By Marston Gordon
Dec 1, 2020, 05:08
138 Student Living has on board four directors that are chartered accountants holding FCCA designations (Angela Lee Joy, Sharon Donaldson-Levine, Peter Pearson and John W Lee), two of who were partners of PricewaterhouseCoopers Jamaica (Peter and John). It is therefore inconceivable that amongst them they cannot put together financial statements that inform shareholders on the state of affairs at the company.
Even under the chairmanship of Richard O. Byles (2018), John W. Lee (2017) and now Ian Persard (2019) the quarterly statements and annual reports are still wholly lacking.
It is no wonder that the stock trades at the steepest discount to book for a main market company, its net book value as at Q4 2020 is $12.85 and thatís after a sharp write-down in fair value of financial asset in last quarter of 2020. And to make two points; the full write-down was done in one quarter when the pandemic broke out in March 2020 and not disclosed to the JSE in the July 2020 impact on business release, the second point is that the directors did not see the necessity of communicating to shareholders the basis for the change in other comprehensive income on the p&l statement as specified by IFRS 9.
Given the situation with Covid-19 and its impact on revenue, the valuation method used for assessing fair value by discounted cash flow (DCF) should have been explained in the chairmanís report with Q4 2020 financial, it would provide clarity to investors that the write-down was negatively skewed by the event and likely to be temporary.
The single largest expense item is utility cost which accounted for 31.2% of total expenses in 2019, yet despite the talk of containing it, the amount is not stated in the quarterly reports, shareholders have to wait on the annual report to know. Legal expenses, bad debt and staff cost although significant suffers the same fate.
It appears that the quarterly financials are prepared on a cash basis so in the final quarter huge expenses suddenly appear.
There are two concession agreements (CA) with the University of the West Indies (UWI). The first is for the build out 2,306 rooms with a minimum of 30 and maximum of 65 years with guaranteed 90% occupancy in any 51 weeks. Under the second CA the build out is for 650 rooms and 72 rooms with the same 90% occupancy for 38 and 51 weeks respectively over 30 years minimum to 35 years maximum. Currently there are 1,464 units with 1,692 beds at four locations.
The valuation assumption in computing the DCF used the shorter period (years) so there is tremendous upside in the fair value of financial assets if the option to extend the CA is exercised.
The variation claims need to be broken out from rental income and reported quarterly, it makes no sense to deduce the amount by stating its impact on net profit.
Huge increase in the receivable need to be spoken about, my guess is that it has largely to do with the variation claims, however shareholders should be informed on its collectability.
At todayís price of $4.00 per share the company is rated a buy as it continues to generate good operating cash and trades way below its book value.
Source: Jamaica Stock Exchange
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