The Sunland Group Limited (ASX:SDG) share price is rocketing higher today after announcing plans to sell off its assets and return funds to shareholders…
The post Why the Sunland (ASX:SDG) share price rocketed 50% higher today appeared first on Motley Fool Australia. –
The Australian share market may have dropped lower on Tuesday, but the same cannot be said for the Sunland Group Limited (ASX: SDG) share price.
At one stage the residential property development and construction company’s shares were up a massive 50% to $2.00.
The Sunland share price eventually closed the day 46.5% higher at $1.95.
Why did the Sunland share price rocket higher?
Investors were fighting to get hold of the company’s shares after it revealed that its directors have undertaken a strategic review of its operations. This follows a consultation with external advisors.
According to the release, the company intends to sell certain inventory which is not currently under development. It also plans to complete the development of certain other projects, over a period likely to be approximately three years, with the intention of converting these assets into cash before repaying all liabilities and returning net asset value to its shareholders.
This remains subject to the sale of the inventory, financiers’ satisfaction, and regulatory and legislative requirements.
What is this worth to shareholders?
The release explains that the objective of the strategy is to return shareholders the current net asset value, where possible, of approximately $2.56 per share by way of progressive dividend and capital payments.
This current net asset value is based on an internal estimate undertaken at the end of September.
Why is Sunland doing this?
The company notes that over the last 10 years it has allocated approximately $680 million towards portfolio replenishment, share buy-backs, and dividend payments.
During this time, the consolidated net asset value for Sunland per share has increased from $1.20 to $2.56. It has also reduced the shares on issue from ~320 million to ~133 million.
However, despite this, the board notes that the Sunland share price performance has been disappointing for a number of reasons. This including because “the inherent value of the business has not been recognised by the market in the underlying share price.”
It added: “The Board has sought external advice on alternatives to return fair value to Sunland Group’s shareholders and the Strategy is considered an appropriate methodology to return value, which the market is not recognising.”
Judging by the share price reaction, the market appears to like this strategy and is finally seeing the true value of Sunland’s shares.
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.