From "The Trader" column in the March 29,1999 issue of Barron's
>>Asset plays aren't generating much interest in a market where profit growth is prized.
Take Associated Group, a low-profile Pittsburgh holding company whose stakes in AT&T, Liberty Media and Teligent, a wireless telecommunications company, are worth considerably more than its current stock price. Associated Group's class B shares finished at 44 1/2, down 1 1/8 on the week, giving the company a market value of $1.7 billion.
In a report last week, Deutsche Bank Securities calculated that Associated Group's interests in these three companies were worth around $70 per Associated Group share. The company also owns True Position, a leader in developing the technology to pinpoint the location of mobile phones. This business has strong growth prospects because of a federal mandate requiring the cellular phone industry to be able to locate two-thirds of 911 calls to within 125 meters by October 2001. Including True Position, Deutsche Bank values Associated Group's assets at $78 a share.
Associated Group trades at such a deep discount to its asset value because the company has huge embedded capital gains on its equity holdings. The company, controlled by the Berkman family, was an early investor in Tele-Communications Inc., which recently merged into AT&T. Its equity stakes have a cost basis of just $7 million.
The discount, however, is especially large now at 43%. Deutsche Bank says that even if the company's portfolio is discounted at 20%, that still leaves a value of $64 per Associated Group share. "It's a very undervalued situation," says Jonathan Glaser, who runs JMG Capital Management, a Los Angeles money manager. "The key question is whether management can figure out a way to monetize their equity holdings in a tax efficient manner. At the very least, you're getting AT&T and Liberty Media at a discount and True Position for nothing."<< |
