As a general rule, the most successful man in life is the man who has the best information.
Money might be made when one finds a company, soon to be a cash generator, that is trading well below its net asset value as the market is giving the company a discount to project completion.
This is very common and something we often see when a junior resource company is raising money to go into production. The share price enters a quiet period while the company completes its bankable feasibility study and then starts to raise the necessary money to enter into production. With the money secured, the potential cash flow on the horizon, and the risk to investors reduced substantially oftentimes this can be a good entry point.
Although not a resource stock, this is, in this author's opinion, the stage that Greenscape Capital TSX.V - GRN is currently at. On a cash flow valuation model growth stocks typically get 10 to 20 times earnings. Greenscape is currently trading at $0.38 giving it a $10M market cap - not even close to typical growth stock valuations.
GRN is currently 3 months away from completing construction of the "world's greenest parking lot." It's a real business and an asset with an appraised value well north of $30M. What makes it green? It draws all its power from wind turbines, solar panels and geothermal wells. This dramatically cuts down the cost of electricity - the biggest expense of operating a parking lot.
Although overall the idea of doing further due diligence on a company whose asset is a "green parking lot" may seem obscure, based on a third party appraisal and the support of one of the world's largest financial institutions the project's financials appear promising:
- Project has a post construction NPV at a 8% discount rate of $46M upon market stabilization
- Average Annual Revenue of $18M over a 25 year operating life
- Net operating income of $5M
To date, construction of this asset has come in ahead of schedule and under budget. It is slated to open by Thanksgiving (American) in November 2010.
Shareholders have many reasons to be excited and confident:
- The fact Wells Fargo provided an $8.5M debt facility to a company with a market cap under $10M lends a lot of credibility to the project. Greenscape originally had their debt arranged by RBC, but Wells Fargo liked the deal so much that they offered a better deal that saved Greenscape a substantial amount of money
- Greenscape owns 90% of the project. A parking lot management company, "Pro Park" owns 10% and will be the operator. Pro Park has 400 parking lots across the US and is one of the fastest growing and most innovative parking lot management companies in the business
- $5M per year in net operating income is based on very conservative occupancy rates for the parking lot: 29% in year 1, ramping up to 75% in year 6
Greenscape Capital TSX.V - GRN is a company with a $10M market cap and plus $30M asset that will be cash flowing within 3 months.
Is a green parking lot on your radar screen? Probably not.
Maybe it should be.
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