If you want to find a genuinely undervalued small cap, you need a solid starting point. Not hype. Not stories. Not management promises. You need a way to answer one basic question first:
What is this business actually worth?
That’s where NAVPS and SOTP come in. They’re often the first places serious investors look when hunting for hidden value – especially in the small-cap space.
Let’s break it down properly.
A simple explanation…
Start with something familiar.
Imagine you own:
• A R1.5 million house
• A R300,000 car
Your total assets are R1.8 million.
Now subtract what you owe the bank – say R1 million. What’s left is R800,000.
That’s your net worth. If you sold everything and paid off your debts, that’s the cash you’d walk away with.
That number is your net asset value.
Companies work the same way.
How NAVPS works for a small cap company
Let’s say a listed company owns: Property, equipment and stock worth R200 million. And it owes banks and suppliers R80 million.
That leaves a net asset value of R120 million.
Here’s the key difference between you and a company:
A company’s value can be spread across its shares. If that company has 60 million shares, its NAV per share is R2 per share (R120m/R60m).
Now things get interesting…
NAV on its own means nothing. It only becomes useful when you compare it to the share price.
• If the share trades at R1.20 and NAVPS is R2, the market is valuing the business at a 40% discount to what it owns.
• If the share trades at R2.50 and NAV is R2, investors are paying a premium.
That comparison gives you instant context.
It doesn’t tell you to buy or sell, but it tells you where to start digging.
A discount to NAV isn’t a green light on its own.
You still need to ask:
1. Is the company growing?
2. Is it profitable?
3. Is debt under control?
4. Is cash actually coming in?
A cheap asset that keeps destroying value stays cheap for a reason.
But NAV per share is a filter. It helps you spot situations where the market price and the underlying value don’t line up, which is exactly what you want when searching for overlooked small caps.
Enter SOTP: NAV for holding companies
When you read the results of an investment holding company, you’ll often see another term: SOTP, or Sum of the Parts.
This shows up because holding companies don’t run one business. They own pieces of many different businesses.
SOTP simply adds up:
• The value of each investment the company owns
• Then subtracts debt and other liabilities
The result is the total value of the group.
In plain English, SOTP asks: What would this company be worth if each business was sold separately?
So, what’s the difference between NAVPS and SOTP?
They tell the same story, just in different settings.
NAV per share is commonly used for operating companies.
SOTP is mainly used for investment and holding companies.
The reason is simple. Holding companies earn money through dividends and by selling businesses over time. Valuing each part separately makes more sense than treating them as one single operation.
What does this have to do with small cap stocks?
Well, small caps are where pricing mistakes happen most often.
They’re ignored. They’re under-analysed. They’re misunderstood.
NAVPS and SOTP give you a clear, factual anchor before the story, before the growth pitch, before the excitement.
That’s why they’re often the first port of call when looking for undervalued opportunities, and why I use them constantly when scanning the small-cap universe.
They won’t make the decision for you.
But they’ll point you to where the real opportunities might be hiding.
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