December 17, 2018

hvn stock analysis

In this post, I will discuss about Golden Bria Holdings, Inc. (HVN).

A reader asked me about my take on HVN. Personally, I'll avoid this stock for now. It's hugely overvalued. I'll explain why.

Hi Mark,

First of all, I want to thank you for creating a value investing blog here in the Philippines. Your analysis really helped me a lot. I hope you don't mind me sending questions to you every now and then. 

I just wanted to ask about the company PSE:HVN. Earlier this year this company surged its value because they bought Bria Holdings and changed its name and focus in their business.

What is the intrinsic value of this company today? Is the market valuing this company correctly? Overvalued or Undervalued?

Thank you.

Right now, HVN is trading at ₱325/share. If you bought it when it was trading around ₱20/share, then congratulations! But, if you're itching to buy shares at its current price, then read this post FIRST before you decide to buy HVN.

HVN - CGI Deal To Acquire Bria Homes, Inc.

A big part of its mispricing can be attributed to the Bria Homes acquisition deal.

Here's why...

Cambridge Group (CGI) is invested in Bria Homes and owns 100% of it. It's a wholly-owned subsidiary.

Golden Haven (HVN) saw an opportunity to diversify its real estate business, accelerate growth, enhance profitability, maximize the value of its land bank and build shareholder value by acquiring Bria Homes' shares owned by Cambridge Group. So both companies decided to enter a deal.

HVN will buy all the shares owned by CGI by issuing HVN stock equal to the value of Bria shares owned by CGI.

Based on calculations, the book value per share of Bria Homes is ₱301.42/share. CGI owns 9,999,430 shares. This translates to a value of ₱3,014,027,483.

That value is equal to 150 million HVN common shares at ₱20.0935/share. So HVN decided to issue these shares out of the unissued authorized capital stock by way of private placement.

After the transaction, the company changed its name to Golden Bria Holdings, Inc.

My Thoughts

I think the market didn't understand the value of this acquisition. When HVN announced the deal, it was clearly mentioned that it's valued at ₱20.0935/share.

Bria Homes is valued at ₱3,014,027,483. To acquire it, HVN issued 150 million shares at ₱20.0935/share. In a per share perspective, the deal is valued at ₱20.0935/share

Remember FB's share swap deal? The total value of SMB and GSMI shares was estimated at ₱336,349,294,992.60. In exchange, FB issued 4,242,549,130 new common shares to SMC. That translates to ₱79.27/share. In short, the deal is valued at ₱79.27/share.

That's the reason why I concluded that FB is hugely mispriced and was able to accumulate at below ₱79.27.

What happened to FB is almost similar to HVN. That's why at ₱325/share, it's already overvalued and doesn't make business sense anymore.

Not convinced? You can also look at the valuation ratios. Based on Morningstar data, current P/E is at 215.2 compared to a sector median of 11. P/B is at 44 compared to a sector median of 1 and lastly, P/S is at 43.4 compared to a sector median of 4.6. These numbers are off the mark.

To answer the question, YES, it's is overvalued. About it's intrinsic value, it's hard to say for now because we don't have enough financial data to predict its future earnings and growth.

The fundamental facts remain but the rationality behind the price movement is insane. It's also the reason why I ignored this stock. I only buy stocks of businesses I understand and if the price makes sense. If not, I leave it alone. I'm a Value Investor and not a trader. It's not my game to ride price action on a daily timeframe.

This is the reason why I don't make huge gains in a short amount of time.

But more importantly, my rationale also prevents me from losing too much and that's why with less amount of risk, I make consistent gains on the long-term.

If I bought this stock at ₱20/share, I would have sold by now. But if I have available funds, I won't buy it at current prices if you'll ask me.

I hope these facts makes sense to you. If not, I'm hands down. I hope to hear your thoughts so please leave your comments below.

Happy investing!

Disclosure: I don't own shares of HVN as of this writing and I don't plan to initiate a buy anytime soon.

  1. Same sentiment here. I value this stock at 28 pesos/share (4th Qtr 2018). It’s nonsense to pay 200B for a 5B worth real estate company, no matter how profitable it is. I expected the price to normalize after a few months but it didn’t so I guess that insane level is being maintained artificially. Perhaps, a secondary offer is being planned in the next year or two. No accusation of wrongdoing here though, just speculating.

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