Updates on Asset-Based Value Plays

 | May 04, 2012 | 1:30 PM EDT  | Comments
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alex

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pby

This is certainly becoming an interesting time for asset-related plays, primarily those that have some real estate exposure. Look no further than Madison Square Garden (MSG), a name I've owned since late 2010. The company, which owns, among other things the Madison Square Garden complex (and associated air rights), the New York Knicks and the New York Rangers, continues hitting higher highs. Shares are up 60% since October, when the basketball lockout was weighing on the name.

That run-up might send some to the sidelines, locking in their gains, but I'm in it for the long haul. According to Forbes, the Knicks are the No. 2 most valuable NBA franchise, worth an estimated $900 million. Forbes lists the Rangers as the NHL's second most valuable franchise, worth an estimated $507 million. The company has a total enterprise value of $2.5 billion, and the Knicks and Rangers alone are worth more than $1.4 billion.

What is the Madison Square Garden property worth? What is the media business worth? Shares may appear stretched at 37x trailing earnings, but this is an asset story, and one I intend to continue holding.

Meanwhile, shares of the shipping and real estate company Alexander & Baldwin (ALEX) have rebounded since the company put up some lackluster first quarter numbers back in February. Since then, the stock is up 22%. Since a late-November swoon, shares are up 60%. What's driving shares here is the presumption that the sum of the parts is worth more than the whole, and in this case, that theory will soon be put to the test.

Back in December, the company announced that it will separate into two publicly traded entities, one representing the real estate business (Alexander & Baldwin), the other representing the shipping business (Matson Navigation). The transaction is expected to close sometime in the second half of 2012, and the company may provide an update next Wednesday during its first-quarter earnings call.

Another name with significant real estate is now back on my radar: Pep Boys (PBY). Following the pre-announcement of a worse-than-expected quarter, it appears that the deal to be taken private by Gores Group for $1 billion, ($15 a share) is in jeopardy. Since shares now trade 25% below Gore's offer, the market is betting that the deal won't go through, at least not at the original price. If it completely falls through, shares may head lower, at which point I may be interested.

This is a 738-store chain that owns the real estate for 232 locations, with a current total enterprise value of around $840 million. The fear is that the decline in operating performance may not a one-quarter event and that business is worsening. It seems like we've been here before with Pep Boys. This company may be on its third or fourth life at this point. It's certainly a chain the I am very familiar with, having visited the local store many times over the years (for one, they still take recycled motor oil, and some value guys still change their own oil...)

I'm not in a hurry here. Frankly, $15 was not a great offer to begin with, and it may stand as a testament that Pep Boys needs a lot of work. We'll see if the deal falls through, and if so, how much further shares might fall.

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