I promised an occasional set of suggestions on undiscovered and undervalued ofex stocks. I said there were still a few astonishing bargains over there and in my view this one fits the bill admirably. (my first suggestion Millbrook is up after two new partnerships and a nice contract win.)

Before i go any further, if you do not like property stocks, look away now! Let's not have a debate on the delights or otherwise of a property crash. i think you as investors have your views and are pretty clued up on the arguments for and against, but suffice to say, if you think commercial property will tumble then this share is not for you.

The stock, then is GSC Property. I hold. GSC has a portfolio worth 43 million plus cash of just under 5 million, after a recent sale. Repayments are fixed over 25 years at around 6%, totalling about 37 million. So nav is over 10 million and the nav is 101p a share. The shares are trading at 55-60p (market cap 5.75 million, nearly covered by cash!) a 40%+ discount to nav and as i said in the headline are profitable.

So why else is this so attractive? It buys on the theme of covenant, rather than location. Among the properties they own are a banking hall in Essex and a drive through in Birmingham. 90% of their customers are top 350 UK companies and or government. They are due for a revaluation of their portfolio soon, (likely to be up if the market is any indicator) and rent reviews should add to profits. The nearest company I can find is Aim listed PHP which is trading at a 5-10% Premium to nav. That would put GSC on 110p a share. Even if you think a discount is more apt however a 10-15% discount would see the shares at 85-90p which i consider to be fair value for the short term.

Oh they even pay a dividend of over 1p a share.

Strong Buy.

Thanks for posting 8Ball.
Couldn't be more happy. After numbers has resulted in an increase to 121p a share in nav!! I posted this elsewhere, let me know if you think it's fair 8ball!

If we wanted to be churlish we'd point to rent income less expenses and tax was a little less than the 1.75 million in repayments, but that is all i can find to be churlish about. The company says it plans to move that area of the business to break even (1 million above the repayment figure next year). And if you think there will be a crash then no property stock, domestic or commercial, is for you anyway.

But all that is to be superficial and not appreciate the nature of the beast we have here:

1) It ignores the company's skilled dealing in the commercial property market. Clearly this is something management have proved very adept and nimble at. Of course the eps will vary year to year, so I wouldn't consider the p/e figure as important myself.
2) Just by breaking even and making the 1.75million repayment (the rent income minus expenses and tax as described above) each year, that 1.75 million comes off repayments and is ADDED each year to the nav (in this case 17.5p per share per year). As is any profit from the property deals and thirdly if you were to add what i consider a modest 4% to the value of the property portfolio that is another 1.8 million (18p per share).
3) If you are still following, break even (rent v expenses and tax) would actually add 35p a share a year to nav from here, on the above model, because of the benefits from the reduced repayments and increase in the portfolio's value.
4) NAV actually came in at 12.1 million (121p a share), so the current share price discount is about 30%.
5) Nice divvy of 2p (3.2p for year).
6) Interest repayments are fixed for the full repayment period, in the current environment a really big plus imho - shrewd move GSC!
7) 85% of clients are top FTSE 350 companies or government departments. Quality.
8) Included in nav is 4.99 million in cash (market cap 8.45 million).
9) Not an option or warrant in sight - zero dilution.

To summarize, What we have imho is a virtuous cycle from here, year after year, of falling repayments and rising nav. Even if the property portfolio stays at the same value, 17.5p a year on break even is added to nav.

I think there is a heck of a lot still to go for!

My own forecast is for nav to grow about 40p a year from here on, (would give us a nav of 200p in two years) for the foreseeable future. The shares are very hard to get hold of, but at 82-87p, for the genuine long term investor, remain tremendous value imho.

One of my long term holds Ofex listed GSC Property (competitive mms now on board)WOW!!!

GSC sell their Loughborough Safeway/Morrisons for 3.8 million ABOVE book value!!!
For a company with a market cap under 9 million and a hitherto nav of 121p per share (shares 88.5p) this is huge and superb news!!

They have also bought a hotel in Derby.

Here's the key part of the announcement. Almost SIX MILLION profit in a year on this one deal!!
Market cap under 9 million! As I say taken in isolation, nav will be 159p after this against share price 87.5p!
Best announcement from a micro cap I can remember, bar none!

GSC Property Holdings plc, the commercial property investment group, has
exchanged contracts for the sale of the Safeway/Morrisons supermarket in
Loughborough for GBP14.8m. The property, purchased in July 2003 for GBP8.86m and
valued at GBP11m at 31 December 2003 has been sold following the completion of a
comprehensive rent review which saw the annual rent roll increase from
GBP565,000 to GBP775,000 per annum.