Chartists may like this one - albeit I prefer facts, which is what you get every 6 months in Chairman's comments. Have held for several years, as I like to hold for the longer term small/medium businesses with tangible assets, good track record and paying dividends. Downside is lack of liquidity (family control over 50%). Steep recent rise on back of good results but could be more to come. Market cap now just under 30M, looks fair for a solid timber merchants business (been around since 1750!)which made 3M pretax in year to 3/2004 and current year has started well. Modest gearing. Yield 3%. Interesting bit is its former depot on which planning for mixed residential/commercial development recently received on Appeal after a long battle. With the company not needing the cash from the sale there could be a bumper one-off dividend. Anybody care to guess approximate value of just over 13 acres development land in Clapton?

Land value is always tricky, the most common way to work out a value is to think in thirds, one third is the price of the land, one third is the build cost and one third is the profit!

A bit more tricky with multiple plots and multiple uses but a good guide.

This is the piece I spoke of earlier lifted from the Pauly Pilot Pub On The motley Fool. Applause should go to the author Carmensfella for his excellent article.

MONEY HIDDEN UNDER THE FLOORBOARDS.....

Or hidden within the company that makes them would be more appropriate or at least a little value to come from the sale of one of their old woodyards.......

I am often asked if I have another company that I think is undervalued in the same way that I felt so confident about Ben Bailey all those years ago.....I wish they came along in threes like the buses but this one in my opinion is a very interesting short term play on the value of a rather large piece of land and the company name is James Latham

They reported their annual results here......


ttp://www.uk-wire.com/cgi-bin/articles/200406250730021295A.html

First of all, for those with an unaccountable fascination for what the company actually does, they are timber importers and distributors. Their website can be found here...

http://www.lathamtimber.co.uk/

You will find a short paragraph about the planning consent regarding the land in Clapton, London at the end of the introductory statement. This is a very longstanding family firm and they do not get too excited about anything but I am sure they are pleased that the consent has finally come through after five years.


If you want to get a feel for the company and it recent performance the Chairman's comments on 2004/05 was as follows...

Sales for the first three months, namely April, May and June, of the current financial year have started well and are comfortably ahead of the same period last year.

Towards the end of the 2003/04 financial year, the prices of some panel products increased substantially. This has continued into the current year and is, at least in the short term, enhancing gross margin.

Although the current year has started well, timber importing and distribution remains volatile and we are mindful of the effects that world demand and the UK economy have on our trading.

So pretty good outlook there then but I am not necessarily suggesting a long term play here.The Diluted EPS has come out at 40.7p. This is favourable against the only forecast, by Credit Lyonnais, of 36.6p, bettering it by over 10%. CL forecasted a dividend of 17p against an actual outcome of 18p, again usefully ahead. I would guess that broker upgrades for next year were a near certainty.

I make the NTBV about 26.7 million, versus a market cap. of about 23.4m at the mid, therefore at a discount to tangible book value.
Net debt was 4.2 million, which is slightly down on last year's 4.6 million.

There is a pension defecit and I am no expert on this so I expect others to do careful research on how the defecit will be covered in future years.

The net profit before tax of 3,029,000 was a substantial increase on the previous year, which was affected by exceptional costs, and was achieved despite the Company paying 474,000 more in pension contributions. The pension contributions look set to continue at a high level for the foreseeable future.



So lets look at the statement regarding the money under those floorboards.......

In December 2003, the planning application on our Clapton site went to Appeal having been refused by the London Borough of Hackney. Confirmation was received on 23 June 2004 that the office of the Deputy Prime Minister HAS granted planning consent. Our appointed professional valuers have now begun to negotiate the current market value of our Clapton site with the buyer's agents. A further announcement will be made when agreement is reached on the value.

To get an idea of the scale of the development, have a look here...

http://www.london.gov.uk/mayor/planning_decisions/2002/april_25_02.jsp#latham

which states...

Latham's Yard, Clapton
A mixed use re-development providing business/light industrial/storage units; office units; 622 homes; 79 live/work units; community facilities; retail type uses; with 577 car parking spaces.
London Borough of Hackney


I have researched this one in great detail and attempted to achieve a fair valuation of the Clapton site which Lathams are now in a position to sell with all consents in place to Countryside homes

It is important to have a feel for the site which is 5.3 hectares/13.5 acres and is in two parts with river Lea frontage to both. There is already a residential development which is about thirty years old in between the two sites all the way along the river in the appropriately named Riverside Close. I have spoken to owners of those properties who are naturally keen to see the old timberyards change into a trendy development so adding value to their property. The one beds and two beds in Riverside range between 130 and 160k.

There are schools nearby and other useful amenities but some road improvement works and access measures will be required . I have spoken to local estate agents ,surveyors , commercial land agents, Hackney planners, and other housebuilders.......the site is well known as very few of this size come available in London. The majority of the 2012 Olympic bid sites and village are within 2.5 miles.


The planning consent has barely changed from the original proposal except that there will be no 12 storey tower and the Deputy PMs office have stated that 43% of the homes should be affordable housing .....Hackney wanted 50%. It is a mixed use development of which I have absolutely no expertise .... retail, office, commercial and light industrial are just not my thing but only about a sixth of the scheme is devoted to it so I am not too concerned about that in my figurework.

There will be 622 one and two and three bedroom homes and 79 live/work units.... the term "Live/work" describes accommodation that is specifically designed to enable both residential and business use. It differs from ordinary home working in its nature and in the intensity of business use that may be involved. They are very popular and are ideal to assist planning applications where the loss of previous employment from the land may be of concern.


I am going to concern myself with the value of the land based solely on the residential development and allow the other parts of the scheme to be bonus value and also balance any cost of clearance of the site that may be cosidered by a valuer to reduce value as the site is not currently ready for build out.

Lets first though take a close look at Countryside Homes who after all Latham have to agree the price with and who through their own valuer will be hoping to pay as low a settlement figure as possible. Countryside specialise in urban regeneration schemes and mixed use developments are not new to them. They work closely with Housing Associations and will know how to maximise the gain on the 43% of the homes that have to be sold to them and available as affordable housing. They often do a design and build programme for the HAs and may pre sell the land required for the 43% in a deal to return their outlay and agree a fixed price to build the units.

At their last annual report CYD claimed to only have margins of 3.4% on their HA build whereas the private residential sales gave them margins of 13.4%. However they made significant amounts on the land sales to HAs. It appears that the average amount paid per plot in 2002 was 54,657 and in 2003 59,218 but at the same time the average selling price increased to 243,000 at the latest interims and they sold 312 of them. They can therefore expect to have to outlay around 25% of their build out value in the land at the outset. This is in line with most builders.

On a standard cost basis I therefore anticipate that with the commercial units , the HA land trade and possible build contract CYD will be looking to make a profit of between 12 and 15m and then at the margins they showed for the private housebuilding on their own account they should achieve at least a further 10m minimum for the build out of remainder of the site after all costs.

So what will they be prepared to pay to gain those returns....as little as possible of course to maximise them even more. Lathams valuer will come up with his estimation of value and under the agreement signed in 2000 and I understand extended last year under the same terms. That agreement stipulates that the two parties must agree within six weeks of the planning consent or go to arbitration valuation with the original consent date of 23 June being the valuation date for all calculations. So unless the valuations are wildly different they should be able to agree something within the next four weeks and advise the market accordingly. After all these years I suspect they will want to press ahead with the deal quickly and delays with a third party arbitrating are unlikely as professional valuers should be within 10% of each other.

I have had differing reasons behind downvaluation of land due to the high housing allocation for affordable homes but all agreed that the overall scheme was strong enough to allow a reasonable reduced profit on that element. As mentioned before I am not including the non housing use in my valuation which is based on CYD paying 45k per plot for the 400 homes to be sold at average selling prices of a very conservative 180k for new build in that riverside location. I have reduced by 25% the valuation of the affordable homes and then reduced the plot cost element to a minimum 20% whereby reducing the final cost to 27k per plot for the other 301 homes.

In my opinion that gives a figure of 26.127m for the site this actually compares very conservatively with the official residential land building index for the borough of Hackney which places a value of 6.8m per hectare on average land in the borough. A downgrade for the affordable homes at a 20% loading would give a value of 28.83m for a 5.3 hectare site but that figure was for the last available index in November 2003. Land values have levelled in the last six months however.

One thing is certainly clear from the index values and that is all land in the borough and the London and south east regions has more than doubled in value from the date that Lathams set their minimum reserve expectation of 6m so I am sure many would seriously question any valuation presented by CYD if it is lower than that.

I personally expect CYD to go for a valuation around 20m which would then guarantee profits well ahead of the amount they would be outlaying for the land. It should be remembered that the build out value of this site is likely to be in excess of 120m so there is plenty of scope for negotiation. As Latham will be well aware that CYD have carried substantial appeal costs they will probably settle closer to CYDs valuation and I suspect somewhere around 22m may be the final settlement figure.

We must then accept that under the contract only 91% which is most likely on the sliding scale once again due to the exceptional costs will be rightly due to Lathams. I am therefore hopeful that within the next four weeks we will see a further RNS stating that CYD have agreed a net payment to Lathams of 20m plus a little bonus of 20000k for the wild riverside bash on the site before we hand over the keys......

To be honest from the outset I suspect the Board had expected to recoup the cost of the move to the two new sites which I already established and commented on in a previous post. That 11m figure has clearly every chance of being returned to the company coffers and the additional gain is purely because land values have doubled while the planning system has frustrated long term shareholders.....

Taking everything into consideration and because the company have other freeholds with historic valuations the tangible assets are certainly well ahead of the market cap and it is easy to understand why the company have felt very uncomfortable answering my questions. The directors advised me that they are unable to trade in the shares at present and I am sure they will be locked out until this deal is finalised.

So there we have it.....I have tried to be conservative but the valuations and reasoning behind them are realistic but there are two parties to this agreement and it could still end up in arbitration. There is also a possibility that Lathams may concede too much to the developer due to the unexpected windfall seen as ample reward but in a tightly held family company with about 16 members working there and with significant holdings I doubt it very much .......

I shall leave it for others to decide how a 20 million windfall is likely to be used by Latham and of course what effect it may have on the share price if the valuation becomes reality......

cheers GF.

What an excellent bit of work. Hope the sale price/terms are finalised soon, but in the meantime it looks as though ongoing trading from their revised depot networks is very strong and e.p.s for the current year could reach 50p. Means the property angle not unduly relied upon at share price around 550p.

Trading update today well received. In the ultra cautious Latham Speak, "ahead of expectations" probably means fanbloodytastic. Who needs an unused freehold worth most of the market cap?

Check out todays interims. Market cap 28M, earnings 30p first six months,net assets 29M, reserve in freehold probably further 20M, yield over 3% - enough to make a value investor salivate.

Now know what it is worth.Won't bother any more on this thread - but I won't be selling mine for a while yet.

hey i'm watching! so what is nav in this stock???

Proptrade - for you I will get back in the pram. With 5M shares in issue, historic NAV just under 6 pershare. These are real assets you can touch, not intangibles. Add in say 10M to NAV from todays news (gross profit over 15M)and that gives you just under 8. Don't appear to have any similar jewels elsewhere in the F/Ds, but for family companies around as long as this the book value of their other land is likely to be conservative and could be more reserve hidden away elsewhere(e.g.lots of timber to value). Underlying trading looks solid and move to AIM/share split in January might enhance profile and liquidity - deferred consideration (8M+ still to come) may give opportunity for more special dividends, particularly as tax paid and pension fund topped up with downpayment received on completion. DYOR etc

Proptrade (and any other interested party)- should have reminded you in the last post to check very carefully the wording of the Press Release, in particular the words "minimum," "current" and "gross profit" (as opposed to cash sale price). The hidden reserve may be greater than we think.

Latham chairman buys 10000 at 595p and chief exec of CYD (buyer at Clapton)engineering an MBO. Co-incidence? Positively the last post on this thread - shall sit quietly and wait, collecting nice dividends along the way. Sympathy to those who gamble on the likes of PET, but I remember Poseidon!

Can't resist a final dig - hope some of you are in. Check todays results. Even after this mornings rise (remember 4 for 1 split, so now equivalent of 680p) market cap less then 35M and published net assets 42M, true probably more. Still has around 12M cash to come from deferred sale at Clapton - business does not need it, tax paid and 2m from first tranche used to bolster pension fund deficit. Leaves a lot for further special dividends and basic trading "comfortably ahead" of last year. Followers will know chairman is invariably realistic to the point of pessimism in his comments. Not the steal it was, but I ain't selling mine.

HQ on Hemel Hempstead Industrial estate, but had a "disaster recovery" plan in place which seems to have worked well. Essentially functioned from other depots at Purfleet and Thurrock.Confirms my view of good management.In the meantime, another special dividend is being paid in January (which with interim gives 8.6p per share). Means overall yield for the year will be above 10% for second year running.Interims show good growth and despite cautious outlook for rest of year and Hemel disruption they still expect to meet targets. Commend all to read Chairman's comments with interim figures - short, concise,factual, easy to understand.Looking forwards, Purfleet/Thurrock ideally placed for timber supplies to work at Thames Gateway and London Olympics. Suspended ceiling/partitioning business (currently trading strongly) not far away either in Dagenham.LTHM has been great success for long term holders, including me for last four years and is IMO expected to more than pay for its keep over the next four.As always DYOR.

This timber merchant company has a habit of coming up with nice surprises and this week announced sale of non core suspended ceiling business to Wolseley for almost 7M above book value at 10.3M. Net assets should now go above market cap again, despite arbitrary pension deficit 9M included in current balance sheet liabilities. It is a cyclical business and they look to have sold at a good time. With further monies also still to come from sale of land at Clapton,they should be swimming in cash later this year and there will hopefully be another special dividend.Risk is that they will use the cash for an untimely purchase, but they have been around 250 years and recent management track record first class.

Another nice surprise today - one of the most attractive features of statements from this company is that the Chairman never uses two sentences when one will do.

Feel very lonely on this thread, but another nice surprise in trading statement today.Been a realtively low risk multi bagger over last 5 years and still looks good value to me, but always DYOR.

I think the Directors are going to take Lathams private.

Possible - the family control over 50% and the business may well have 15/20m of cash by the year end against current market cap 36M.

well i bough a 2500 shares late on yesterday. I did a little reseach and it seems the co is very cash rich on a low pe-just what i look for. Will be interesting to see if this one breaks out as others find the value. Looks a very well run family business and it's interesting to note what one writer on the ADVFN bb has said about how much storm damage there was back in January-ie they must have been mad busy selling fence panels. Certainly another cheap one the Leach has found!!

bought another 1000.

Not a lot of news flow from LTHM, but when it comes it tends to be good. Results due next month unlikely imo to disappoint. Nice to have some company on this thread Dave - been quite lonely (but very profitable!) last few years.Still one of my largest holdings.