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Could this Beaten Dog Yield La Dolce Vita?

The first home I bought in Auckland was a bargain. A 1940s bungalow on a busy arterial road. It had recently been subdivided on to its own site, with town houses being built behind.

There was much uncertainty then around its prospects.

Would the tunnel motorway eventually go through and reduce traffic on this road? What would the proposed houses being built behind be like?

Disruption. Noise. Uncertainty.

Precisely why this home was a bargain. It went on to double in value on average every 3 years.

The same principles apply when buying most assets.

Blue-chip homes, perfectly sitting stocks or ideal markets at any point in time will usually sit ‘fully priced.’

There’s no room for you to get a bargain.

Yet, if you take on some uncertainty risk or find distress that in time may be resolved — that’s where the potential for rapid capital growth lies.

Right now, with our UK, US and Australian positions rising, we need to cast the net wider.

‘Italy Represents a Good Investment Opportunity’

Well, so says Jose Ignacio Izquierdo Saugar, chief executive officer of insurance giant Aviva Plc’s Italian unit.

The country has been struggling with low growth, high government debt and the anti-EU populist threat personified by Matteo Salvini and his right-wing Lega party.

Italian stocks have been hit amidst these concerns.

Yet, recently, Prime Minister Giuseppe Conte managed to survive a leadership coup. And in the process, he has restored some confidence that Italy will stick with the euro as its currency and remain in the EU.

At least for now.

Investors were wary that should Italy wish to depart the euro, all assets would have to be redoniminated in the new, local currency. Presumably the lire again?

While Matteo Salvini and the Lega seem to have been sidelined for now, they could stage a comeback. There are few certainties in Italian politics.

Yet, discounts on some stocks do seem overdone. Italy is Europe’s third-largest economy. It has been running export surpluses and, despite a spendthrift government, features households with comparatively low levels of debt.

One publicly listed collection of assets that could be underpriced lies in Immobiliare Grande Distribuzione [BIT:IGD].

IGD is the largest listed Italian group in the retail real-estate sector, with a portfolio valued at €2.39 billion — around 93.7% of which is in Italy (by value) at 30 June 2019.

The company owns 61 significant retail properties in Italy and 14 in Romania.

If we consider the current Price to Book ratio inherent in the share price, you’re buying into these assets at potentially much less than their valuation. This is due to concerns around Italy and the retail space in general.

Yet, the company has consistently maintained high levels of occupancy — 96.3% in Italy and 96.4% in Romania as at 30 June 2019 — across more than 2,000 tenancy contracts.

And two of the most significant shareholders are hypermarket anchor tenants themselves. Coop Alleanza holding 40.92% of the share capital, and Unicoop Tirreno holds 12.03%.

My own experience of visiting these huge food hypermarkets in Northern Italy is that they were buzzing. Offering among the best selection of food and wine anywhere in the world.

An Ipercoop hypermarket at IGD’s Mondovicino Shopping Center. Source: IGD

Although the population in Europe is relatively static, IGD is predicting real growth in grocery trade of around 24% by 2022 thanks to growing consumer spending, especially in Central European countries like Romania. This represents the second-highest rate of shopper spend growth in the world after Asia.

IGD is well-poised to capture upswing in the grocery trade through its retail properties. And potential uplift as investors begin to warm to Italy again.

Here are the fundamentals currently seen in the IGD stock:

Source: Interactive Brokers TWS figures as at 1am, 23 September 2019 GMT

While the company does need to improve earnings and return on equity over the longer run, the value fundamentals of book value to share price, alongside the dividend outlook, remain reasonable.

I encourage you to review IGD’s latest investor presentation here for further information.

The key risks with IGD is that retail-sector assets may fall in value rather than rise. Italy’s political and economic outlook may also worsen rather than improve. And the cost of debt for IGD may increase, placing pressure on margins and profits.

At the time of writing, the stock is trading near its 52 week low of 5.21.

Portfolio update

It’s been cash-in time for those of you holding some of our key dividend picks:

Crest Nicholson [LSE:CRST] declares dividend of 11.2 GBX per share, with ex-dividend date of Sep 19 and payment on Oct 4.

Tassal Group [ASX:TGR] declares dividend of 0.09 AUD per share, with ex-dividend date of Sep 10 and payment on Sep 30.

And here’s how the portfolio is currently looking with any ‘Buy Up To’ guidelines adjusted as of today:

 Current as of 24 September 2019 at 9:30pm GMT.

Just a reminder: if you want additional help on how to trade global shares, October 1^st and October 8^th is the best time to come meet us. We will be having our first Investor Training Event, where I’ll go through everything you need to know.

But remember: we have limited spaces remaining!

Please click here to reserve your tickets now.

It’s wonderful to have you on board, taking this journey together. Certainly, we have many more opportunities to cover. Filled with promise and income.

Regards,

Simon Angelo

Editor, Lifetime Wealth Investor

Important disclosures

Simon Angelo owns shares in Immobiliare Grande Distribuzione [BIT:IGD]