Market should value companies by cash flow
The value of a company should be measured by its cash flow and not by its net asset value (NAV), according to Kim Redding, executive director and global portfolio manager for AMP Capital Redding Investors.
Speaking at an AMP Capital Redding Investors media round table in Sydney, Redding said that using a NAV analysis to measure the financial health of property companies does not work, and it was the wrong way to look at a company.
“Real estate has value because it’s got cash flow,” he said.
“There are 12 companies in the [listed property market] that trade below 20 cents per share. And they’re companies that if you measure from an NAV perspective, they have extreme discounts to NAV, and the market is saying ‘we’re not sure you’re going to survive’. But if you look at their cash flow coverage to their debt service coverage, they still have plenty of cash available to service their debt.”
“From a cash flow point of view, these companies are in fine shape,” he said.
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