Is this penny share deep value hiding in plain sight?

The appeal of penny shares for investors is often the hope of buying something for much less than it is worth.

One share in my portfolio typifies that right now, I reckon.

Logistics Development Group (LSE: LDG) has a share price of around 14p. But its net asset value (NAV) per share, at the end of June, was 26.7p per share.

Can that really be the possible bargain it seems?

Value is locked up, for now

There are a couple of points it is helpful to understand.

That NAV estimate is already from a few months back. Since then, the company has invested £15m into a distribution business. Over time, I think that should help to create value, but for now it means that money is locked up in an investment, not sitting as cash on the balance sheet.

In fact, at the end of June, the company only had £8m of net cash on its balance sheet, so I will be interested to see in due course what effect that deal has on the balance sheet in the short- to medium-term.

That is typical of the wider asset base at the company.

It is not sitting on 26.7p per share in cash. It is sitting on some cash and multiple stakes in private companies.

They can be difficult to value in the absence of a public market for their shares. It can also sometimes be difficult to release the perceived value if desired, as there may not be a market of active buyers.

Clearly, estimating an NAV always involves making certain assumptions. Still, Logistics Development Group really does look to me like a bargain penny share, given the value of its underlying assets.

Tempted to buy more

Earlier this year, under shareholder pressure, it used some of its spare cash to return £21m to shareholders at 19p per share.

I gladly took that money and banked a profit. Since then, though, I have added the penny share back into my portfolio.

At its current price, I am tempted to buy some more. For now, though, I am keeping my powder dry as I see quite a few opportunities in the current market and think more could come along if we encounter further stock market volatility. Still, I am weighing buying some more Logistics Development Group shares in coming months.

I am a long-term investor anyway, but I certainly think that mindset helps here. The company is playing a strategic long game, aiming to build value by owning stakes in carefully selected companies for years.

As a penny share, it does not have the news flow a much larger business might have. It can also be challenging for an outsider to assess what they personally think is a fair valuation for the sort of medium-sized private companies in which the group invests.

Still, from a long-term perspective, I see it as a penny share for investors to consider. I plan to own my stake for the long run.

The post Is this penny share deep value hiding in plain sight? appeared first on The Motley Fool UK.

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C Ruane has positions in Logistics Development Group Plc. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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