Looking beyond the technology/growth space for a different type of opportunity, I have been running an eye over Sutton Harbour Group (SUH) for potential gains over the medium-longer term.
It is however something of a tentative selection, in that for a number of years now it has failed to achieve or gain any kind of traction. Consistently trading well below its stated net asset value, SUH has under delivered both on the trading front and on its extensive plans to realise real value from its property assets.
That said, there are now a number of factors conspiring that provide for some optimism and which could collectively provide for some decent upside and see the shares - currently trading at 21p - potentially re-rate towards or even beyond the current quoted NAV of 39p, should extensive plans in play come to fruition. SUH, with a market cap of £24m is a Plymouth based company that both owns and operates the harbour and adjoining facilities that includes property, car parking and the large local fishery operation.
It sounds like a bit of a mixed bag and the business is perhaps further complicated in that the company also holds a long lease of over a hundred years on the now defunct Plymouth airport site.
The company has been quoted for more than 20 years and apart from a period between 2006 and early 2008 when they traded at well over a pound, the shares have done little.
Although this may suggest that SUH is something resembling a value trap and is perhaps one stock best avoided, a change of management in 2017 which in tandem saw a major investment may now at long last be set to deliver. Phil Beinhaker probably won’t strike much of a chord with anyone taking a look here, but the Canadian businessman has generated some serious wealth over the years and was co- founder of IBI Group, one of the world’s leading architectural and consultancy businesses.
On becoming involved in SUH, Beinhaker soon acquired a controlling 72% stake via his vehicle FB Investors after paying 29.5p per share following the tabling of an offer to existing shareholders. Just why FB didn’t go the whole way with an offer for a full takeover is something of a mystery and although with such a firm hold, it could quite easily have taken the business private, it was stated that this was not the intention and that the plan was to remain as a quoted entity.
That has remained the case and more recently in 2019, Beinhaker’s son Corey also joined the board, stepping into an executive position following the former CEO Jason Schofield’s departure some 18 month earlier. The younger Beinhaker also appears to have plenty of development project experience which amongst others includes major involvement in the Tel Aviv Red 10 line underground station, along with technical specification for traffic management for the inter-urban network across Israel.
Given the Beinhaker’s association and investment via FB, it is difficult to believe that they don’t envisage making a success of the SUH operation and deliver on the development prospects which could in turn provide for meaningful returns to long suffering shareholders.
The post Covid/Brexit environment could also provide for a more positive backdrop and climate for SUH to make progress now, not least, as Plymouth has been designated a free port under the chancellor’s recent proposals.
Amongst a number of positives across business and commerce, planning proposals for development and regeneration should now be accelerated which should benefit SUH as it is involved in a number of major opportunities across its asset base.
There is also the potential for a marked increase in tourist/visitors to the area with obvious pent up demand and that provides for potential gain from its existing operations.
At present, SUH generates revenue from its owned and operated Sutton Harbour, along with King Point Marina, Plymouth Fisheries, Car Parking operations and Property.
The fishery business alone is an interesting business which has grown over the years to become the second largest fish market in England, and where It sells some 6k tonnes of fish and shellfish annually.
The Harbour operation boasts berthing for well over 500 vessels which provide for annual and consistent revenue for the Group, from fees and rents.
King Point Marina is a relatively new addition (2014) growing in size over the last few years which at present provides for over 100 berths and which also sees SUH with adjacent leisure facilities.
Across its property assets, the company receives income from various tenants that includes amongst others the National Marine Aquarium, which is major attraction in the area. Total revenue for the group from these sources in recent years has however been consistent rather than exciting at an average level of £6m, which in a good year has delivered pre-tax profits of £1.5m and EPS of 1.65p. Hardly exciting stuff, which is arguably reflected in the lacklustre share price performance over the period and which begs the question as to what may prove a catalyst for that potential re-rating. In short, two ongoing projects hold part of the key which are looking increasingly likely in coming to fruition, these being the Harbour Arch Quay and Sugar Quay developments.
Harbour Arch is an offering to provide 14 apartments; six two-bedrooms, six three-bedrooms and two luxury three-bedroom penthouses on separate floors with an extremely high spec.
Sugar Quay however, is a much greater and arguably more exciting project which sees SUH looking to deliver 219 high quality waterside apartments providing views to the west of the Harbour across to the Barbican and Plymouth Hoe.
Additionally, the plans include a public square and landscaped walkway to the harbour which provides for a positive and welcome connection.
The development opportunity was first identified some thirty years ago but now looks increasingly likely to be delivered as permission was already granted in 2018, prior to SUH submitting what are revised plans now waiting approval.
Importantly, both projects are looking to receive the green light anytime in the coming months and the commencement of works should begin soon after with a completion for Sugar Quays being hoped for by the end of 2023. No doubt, SUH will be bringing on board development partners for the two projects where the proposals also fit in well with the Plymouth City Council Waterfront Strategic Masterplan that was launched in 2017.
Both developments would appear to offer SUH considerable upside potential in an area that looks ripe for regeneration and growth and that should if successful translate into shareholder upside. There was also additional news from the company as recently as last December when it completed the freehold purchase of a site of 1.5 acres also close to Sutton harbour by way of a new loan via a private funder. The company also received planning consent for the installation of Event Pontoons within the harbour with the focus being on serving entertainment for both locals and visitors to Plymouth.
The last piece of the puzzle here is the long lease on the Airport site which having proven uneconomic to run as a commercial aviation business has been earmarked on more than one occasion for a major residential development. The site is owned by Plymouth Council but the lease was transferred to SUH in 2004 on a 150 year timeframe and there have been various proposals put forward over the years.
One such suggestion from SUH was to turn the site into a mixed-use housing-led garden suburb titled Plym Vale, but a decision on that was put back until 2024 as part of the Plymouth and South West Devon joint local plan.
There are also some calling for the site to be reopened in the future as a viable aviation operation, but that looks unlikely given SUH’s decision to pull the plug, so it would have to be in the company’s specific interest to recommence flight activities.
Either way, something will have to give there sooner or later and given Plymouth having been earmarked as an area for extensive regeneration and investment then SUH would appear to be in a good spot.
There is not surprisingly a large spread on the stock, although any real positive news would likely see the shares move forward sharply. It also worth noting that there are borrowing commitments too with the business being leveraged to a point. Non Exec Director Graham Miller is the sole board member to have purchased shares over the last few months with 27k and 28k being acquired at 18p in December and February,