Carpathian

I've been challenged to find a property company worth investing in, and on minimal research have plumped for Carpathian Plc. http://www.carpathianplc.com/news/2752987.go

Let's see if it's actually worthwhile.

Price

Share price is 15.75p, Market cap £38m.

Earnings

Underlying earnings of £12m for last year, on a net rental income of £34m.

Balance Sheet

£508m of investment property, £406m of debt. All debt is non-cross-collateralised, non-recourse.

Equity of £185m, minus £13m of goodwill leaves £172m of tangible assets. 72p NTAV per share.

£41m of uncommitted cash at holding company level = 17p per share. £20m earmarked for injecting into subsidiaries to satisfy banks.

Plans to return at least 8p per share to shareholders this year. That accounts for the rest of the cash.

Value

Taking a realistic view of Carpathian's situation, I think we can expect:

• Returning 8p per share to shareholders this year. They wouldn't put that in their results if they didn't think they could deliver. Not sure if they plan to do this via a dividend or buybacks.
• Investing of the rest of their cash into their properties to satisfy bank requirements.
• Abandoning perhaps 25% of their portfolio and letting the bankers take it. I would expect this to have little impact on their NAV, since their LTV ratio is so high, and presumably the properties they abandon would be likely to be those where there is little to no equity remaining.
• A further decline in property values. Currently the yield on their property is 6.7% - assuming that increases to 8% (which I would consider reasonable) that suggests a fall of £83m, or 35p per share.

That would leave a tNAV of 29p per share, even after a cash payout of 8p.

Conclusion

I think Carpathian is a wothwhile, if risky, purchase.