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Tamawood: Gathering momentum?

Reported by Mike King, The Motley Fool.
Wednesday, April 18, 2012
Topics in this article:
Asx,Bhp Billiton,Tamawood Limited
World's kookiest billionairesBillionaires and their eccentric and outlandish publicity stunts.

Tamawood Limited’s (ASX: TWD) share price hasn’t moved since the beginning of the year, stuck trading around $2.00. According to Google Finance, the stock is trading on a trailing P/E of 16 and paying a dividend yield of 10.5%.

Based on historical data and using average prices for each year, Tamawood has paid a dividend yield of over 8 per cent every year for the last ten years. Not bad for a Queensland-focused property company.

The company

Tamawood’s activities consist of home design and construction, project management services, construction and resale of ‘ready–to-occupy’ homes as well as franchising and licencing operations in regional Queensland and New South Wales. The company is one of the largest providers of contract homes in Queensland, supplying more than 1,000 per year.

The company also generates and trades renewable energy certificates associated with solar products.

Director’s buying

Peter Lynch, famed author of One Up On Wall Street, said:

When directors of a company sell shares, it can be for many reasons, but there’s usually only one reason why directors buy shares. They think the share price is undervalued and will eventually go up”.

Tamawood’s management have been buying shares recently, with Chairman Robert Lynch (no relation to the esteemed Peter) purchasing 500,000 shares on 9th March 2012, at an average price of $1.76.

Another two directors also bought shares the same day, Rade Dudrovic purchased 100,000 shares, while Andrew Thomas purchased 50,000 shares. (The timing of the three purchases on the same day likely has much to do with allowable ‘trading windows’ for directors).  Those purchases were made on the same day that the company announced that net profit after tax for the eight months to 29th February 2012 was $3.3m, a $1m improvement since 31st December 2011.

Disappointing 2012 half year results

This comes after the company reported a 46 per cent fall in net profit after tax down to $2.2m, for the six months to 31 December 2012. However, the company did say that most of the issues affecting profits were due to timing. The company expects to have a much better second half 2012, as more settlements are finalised.

Share Buy-back

The company also announced at the AGM in November 2011 that it was going to buy back up to 35 per cent of issued shares, including up to 13.5m shares from the managing director, Lev Mizikovsky. Mr Mizikovsky founded the company in 1989, and is unusual in that he doesn’t take his dividends in cash, preferring instead to reinvest back into Tamawood through the company’s dividend reinvestment plan. Mr Mizikovsky currently owns over 29m shares in Tamawood.

An independent expert has also estimated that the fair market value of Tamawood shares to be in the range of $2.30 and $2.56. Directors must share that view, buying shares at a discount to their estimated value.

Management have stated that the buyback would commence in November and be completed by the end of June 2011. As of today’s date, no ASX announcements have been lodged regarding the buyback, so there’s some doubt whether it will still take place.

The company also intends to sell unsold ready-to-occupy housing stock to Mr Mizikovsky at or above current market valuations.

Should the buyback of shares and divestment of housing stock go ahead, it should increase the company’s free float and provide greater liquidity, as well as strengthening the company’s balance sheet further. The company plans to utilise the funds to pay off its current debt of $5m.

Outlook

The company’s sales were 200% higher in December 2011 than October 2011, and Tamawood reported receiving a high number of enquiries. Management attribute the stronger sales momentum to easier finance approvals for completed ready-to-occupy homes compared with pre-construction finance approvals, and its ready availability of housing stock that provides immediacy and convenience to new home buyers.

The company is confident that its 2012 financial year profit result and dividend will see it out-perform its peers.

The Foolish bottom line

With so many related party interactions, investors should always be wary – but there’s no reason to expect management are doing anything other than acting in shareholders’ interests. On a P/E basis, the company appears expensive, but the prospective dividend yield of over 8 per cent (fully franked too) is attractive. The company will give another profit update in May 2012, and it will be interesting to see if the company has maintained its sales and profit momentum.

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Motley Fool contributor Mike King doesn’t own shares in Tamawood. 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. Click here to be enlightened by The Motley Fool’s disclosure policy.

26/10/2014 10:33Sydney, Australia. 26 October,2014
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