The quality of the business model in ARA is undisputed. Trouble is, those guys in the West has cooked up an economic storm and we are likely to face an asset deflationary environment. Yes, ARA does not quite get involved in the prop cycles as they collect fees and does not own any real estate in the books. They do however, hold stakes in REITs and invest capital in their private funds as seed capital. They now have 40m shs in Suntec, 12m in Cache and 23m shares in AMFirst. To elaborate on this topic requires a whole new chapter.

Anyhow, I just saw the latest Jaguar XF and I love it.... but will I pay $265k for it? Likewise, do I want to pay $1.18 for ARA today? Looks cheap now, if you see that ARA was trading @ $1.75 only 4 months ago. Since ARA fundamentals didnt deteriorate since May, (in fact ARA is better today versus May with a $10m kitty coming) ... so was ARA overvalued then, or its undervalued today? Or neither?

Let's look at a common valuation method for asset managers. AUM/Mkt cap... the higher the cheaper.

Ok here goes.

1. ARA is 18.8/0.906 = 20.75X
So who to compare?
ARA took a 15% stake in a Aussie peer (http://www.ara-asia.com/Document_Library/newsLetter/22-Jul-1008-07-54_APN-Placement-220710.pdf) in July 2010. So lets look at APN Property Group.

2. APN's AUM/Mkt cap is 2.253/0.026 = 86.65X
So now we know why John bought into APN... anyway, his entry price is 22cts. Its now doing 16cts.

3. Using ARA's 20.75X matrix, let us also look at CMA. Why CMA? Coz, its got an ARA-business embedded within. (most people don't realise this)
CMA's AUM for their fee-income biz is abt $25bn. So at ARA's valuation, their fee-income business is worth $1.2bn. CMA mkt cap is $4.6bn today but it has got lots of real estates inside there whereas ARA's NAV is their shares in REITs + tables + chairs. Once again, going through CMA's valuation would be a new long winded topic altogether.

--Morten

source nextinsight