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Explosion of 2019
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In the financial world there’s a term called ‘holdings company discount’.
What this refers to is a discount investors apply to the share price of a company that ‘holds’ other investments.
For example – PSG Group is an investment holdings company.
It holds investments in Capitec, PSG Konsult, Zeder, Curro and Stadio.
If you consider the value of these investments (which we know – because these investments are mostly listed on the JSE) you’ll see that PSG is worth R320 per share. At the same time – its shares trade on the JSE at only R268. That means you get PSG at a 16.25% discount to the value of the investments it holds.
This includes Capitec, Curro and Zeder.
Effectively you could go out and buy Capitec, Zeder and Curro shares – at full price. Or you could simply buy PSG shares – and get the other ones at a big discount.
– referred to as the holdings company discount – is an opportunity for astute investors.
You see – whenever the ‘holdings company’ sells these investments it gets full market value (or even more) for them. But investors apply a discount to the share price. So you get the ‘discount’ plus the premium as a profit when that happens…
So why do investors apply a ‘holdings company discount’?
There has been research done on the phenomena and the main reasons are:
1. Noise traders don’t fully appreciate the value of the underlying investments of holdings companies
2. Liquidity of the investments a holdings company has requires a discount to compensate for risk
3. Holdings companies have management fees. 4.
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How you can make a mint from holdings company discounts
Because of the factors I named above – holdings companies tend to have discounts all the time. But these discounts are typically small. Around 5-10%. And when things look shaky in the economy it turns to 20% discount.
Here’s where it gets interesting – once a company sells some of their investments and gets full value (or a premium) for them you get to pocket big time.
For example – Just today a company called York Timber sold one of its plantations for R54 million. The plantation was only valued at R39 million on its books.
That means a profit of R15 million – or a 38% premium to the asset’s value.
But the interesting thing is that York’s value, based on the value of all its investments minus its debt, sits at R9.43 – while its share price is a mere R1.40…
That’s a discount of 85%!
Now imagine the company sells more of its assets – raising cash
… Investors could make a fortune.
Then there are companies like Trematon – its investments amount to R4.68 per share – while its share price sits at 290c…
I’ve actually uncovered at least 6 penny stocks with these kind of 20%, 30%, 50% and bigger discounts right now.
Here’s to unleashing real value,
Editor, Red Hot Penny Shares
I’ve just finished my extreme Wealth Explosions Playbook for 2019. It details six stocks that are massively discounted from their true value and when the market cottons on you can generates thousands instantly. Find out how to claim a free copy here.