Millennium & Copthorne Hotels Trades At A Discount To NAV

| About: Millennium & (MLCTF)


Millennium & Copthorne Hotels is a British chain with locations across the globe.

The stock trades at a discount to NAV.

It is a major holding of IVA Funds and Third Avenue.

Millennium & Copthorne

Millennium & Copthorne Hotels (OTC:MLCTY, OTC:MLCTF) is a British hotelier trading at a big discount to NAV. The company has locations across the world and some of the nicest properties in the business. It is a holding of IVA Funds and Third Avenue.

There are 324 million shares and the stock trades at a market cap of £1.367 billion ($1.969 billion). It takes $1.44 to buy one pound. The stock yields 3.2% based on last year's dividend. Occasionally, Millennium pays out a special dividend. Last year, it paid out a dividend of 9.15 pence plus the ordinary dividend of 13.59 pence.

Millennium owns or leases 64 hotels, manages 31, has franchised 10, and classifies 15 as "Investments". In addition to the locations under the flagship Millennium name, the company also owns or operates: Grand Hyatt Taipei, Novotel New York Times Square, Grand Hotel Palace Rome, and the Copthorne Hotels throughout London. I can't tell you how many chicken lunches I've had at the Millennium Biltmore in Los Angeles at CFA Society meetings.

Revenue per average room last year was £71.55 ($103.03) and the occupancy rate was 74.2%. In 2014, Millennium has 33,367 total rooms. Revenues have doubled over the last ten years, but some of that is profits from the sale of properties. Outstanding shares have barely grown.

City Development Limited controls 61.19% of shares. The Singapore based investment fund has been increasing its share. Iva Funds holds 4.77%. I found Millennium by reading Third Avenue's Annual Report. Third Avenue has stated that it feels the stock is trading at a large discount to net asset value.

In the most recent quarter, Millennium shows £3.950 billion ($5.69 billion) in assets and £1.1318 billion ($1.9 billion) in liabilities. There is £832 million ($1.2 billion) in debt and £211 million ($303 million) in cash. Solvent. Earnings per share for the first nine months are down from 10.3 pence in the prior year to 7.3 pence. Much of this is due to weakness in Asia and the refurbishment of several hotels.

Like many foreign companies, you can find scant information on the internet. Most of the news is from hotels trade sites or hot stock news. No real analysis.

As for the net asset value, in last year's Annual Report, management listed it as £2.735 billion ($3.94 billion). This is quite a bit more than what is listed above as the market cap. So using last year's numbers and today's market cap, it's trading at a discount to NAV of 50%. Wow! The stock has gotten crushed. It's trading at £4.22 and its 52 week high was £6.08. Even if the NAV is lower than what it was with a downturn in the economy, it's still trading at a big discount.

Needless to say, the hotel business is dependent upon the economy. It looks like Millennium's stock has sold off with worries about a recession. Buying stocks at big discounts to NAV can work with one caveat--you have to have a portfolio of them. If you have a portfolio like IVA or Third Avenue, it will work over a long period of time. Third Avenue has been down in recent years but eventually their style will come back into vogue.

As Marty Whitman of Third Avenue says, you have to look for some type of resource conversion. Eventually, share holders get tired of the stock trading at a discount to its real equity. Properties could get sold off or there could be a special dividend. M&A is another exit strategy. I don't know what it will be for Millennium. It's owners are from Singapore and Asians love real estate and hotels. They also don't care if their stocks are down. They are extremely patient, unlike American investors who want instant gratification. I'm not going to buy the stock but am interested in learning a little more about Millennium.

Disclosure: I am/we are long TAVFX.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.