Libertas 7: An Undercovered Deep-Value Play

Discover the Hidden Gem Trading at a Huge Discount to NAV

Investment Report

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Key points:

• Deep Value Opportunity: Trades at a significant discount to its Net Asset Value (NAV), offering potential for substantial upside as the market revalues the company.

• Robust Real Estate Pipeline: Holds both development projects and rental properties in prime locations around Valencia, with sales expected to grow from 33 to over 100 units by 2028.

• Proven Investment Portfolio: A 60+ million-euro portfolio managed by a veteran value investor with decades of experience.

• Thriving Tourism Division: Owns and manages strategic hospitality assets, including three rental buildings and a hotel near Valencia’s historic port.

1. Introduction:

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As a disclaimer, this company is the largest position in our fund, and we have examined it thoroughly. Libertas 7 focuses on financial investments, as well as real estate and tourism management, guided by diversification, prudence, and long-term sustainability. As you will read in this article, the company’s business model is straightforward and carries low risk. Its notable undervaluation stems from a market cap below 50 million euros, a low free float, and limited market awareness of its existence.

We will discuss these factors in detail later in this thesis, but I can already note that there is a clear plan to close the gap between the company’s market capitalization and its true value—which appears to be more than double. The company holds 100 million in NAV and has real estate development projects projected to generate 10 million in EBITDA over the next four years. There is also room for additional growth, given the strong real estate sector in Valencia.

The projections for the various lines of business were prepared by my friend, Javier Ribas Meneu from Ten Value. Our own analysis showed more bullish projections than theirs, but for the sake of being conservative, we will use their projections.

2. Real estate development business:

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Libertas 7 operates in both property development and rental activities. The company expects a substantial increase in residential unit sales over the coming years, rising from 33 units in 2023 to more than 100 units by 2028. In its rental segment, the company owns buildings and commercial spaces in central Valencia (Spain), with a fair value exceeding 15 million euros and an annual rental income of around 0.4 million euros.

Valencia is one of the most promising markets for real estate growth, given its highly constrained supply, low level of new offerings, and steady population growth.

As mentioned in my thesis on Grupo San Jose, the real estate development business can be difficult to track from an investor’s standpoint. A company can only recognize project revenue once the entire investment has been made and the project begins delivery. This means that even if all units of a particular development have been sold, revenue cannot be recorded until the deeds are signed.

Libertas 7 went through a rough patch during the housing crisis and has been gradually rebuilding since then. Their investment in new real estate development was initially very low, but over time, they have regained the confidence to start new projects. These projects will begin contributing revenue (via deeds) in 2025 and should continue to grow over the following years.

Currently, the company has made 24.2 million euros in reserves from its developments, with 241 units available for sale amounting to a total portfolio worth 63 million euros—revenue that will be recognized in the coming years. Additionally, there are two undeveloped land plots and two third-party development projects. The NAV of their leased real estate assets is 22.15 million euros.

In the coming years, there is additional upside potential from new projects, which should drive further growth and profits, given the company’s extensive market experience. Libertas 7 is extremely conservative and will only undertake projects that are almost certain to be profitable, so there is little need to worry about poor allocation decisions.

Finally, the company intends to significantly increase its dividend payments, a goal that appears feasible as it expects to earn more than 2 million euros in EBITDA from upcoming developments.

3. Tourism division:

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Libertas 7 owns three holiday rental buildings in the Port Saplaya complex (Valencia, Spain), with a fair value of 21.3 million euros. It also manages the Hotel Sea You Port Valencia, located near the city’s historic port area. This division currently generates over 3 million euros in revenue, with an average occupancy rate of 67.7%—a 1,000-basis-point increase from the previous year.

Despite having 10% fewer available rooms due to ongoing renovations, the company has still managed to increase revenues by 5% over the last nine months. All indications suggest that this will be a record year for their tourism division, driven by higher occupancy and an improved average daily rate. Moreover, there is still room for growth, as Libertas 7 is actively looking to manage additional hotels and apartments.

4. Investment division:

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Libertas 7 holds an investment portfolio exceeding 60 million euros, with most assets in the stock market and the remainder in private equity and other ventures. I have met with the director of the investment division, who is a value investor with decades of experience. I am confident that he will manage the company’s portfolio effectively, especially given their focus on traditional European businesses. The portfolio also includes notable luxury positions, such as Kering and LVMH, and it has consistently outperformed European indices over the past two decades.

Accounting for this segment is challenging because revenue is not recognized until assets are sold. Since they typically adopt a long-term approach, realized gains are infrequent. Furthermore, their private equity investments often require reinvestments and do not yield profits until fully exited. Overall, I believe the company can grow its investment portfolio at an average rate of around 10% per year. They also anticipate exponential growth from their private capital investments and additional upside from managing external capital.

5. Valuation:

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The estimated value of the company’s main assets for 2028, after deducting debt, is around four times its current market capitalization. Notably, the combination of liquidity and financial holdings is sufficient to cover the group’s debt (approximately 30 million euros) and almost match its market value (approximately 40 million euros), effectively leaving the remaining assets at no cost.

Management anticipates continued mid- to long-term value appreciation in all three divisions, driven by organic growth in tourism, execution of real estate projects, and returns from the investment portfolio. The company currently trades at a significant discount to its NAV (Net Asset Value).

In my view, the best way to measure the company’s growth is by tracking NAV per share, as it simplifies forecasting. Conservatively, NAV could grow by 8–10% per share, with potential catalysts—such as new developments, expansion into hotel management, or managing third-party funds—further boosting growth.

6. Closing the value gap:

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Libertas 7’s leadership is committed to increasing the overall value of the group, as well as providing attractive shareholder remuneration. The Noguera family holds around 80% of the capital, and there is no apparent misalignment between management and shareholders. However, the low free float of the stock makes it difficult for the company to maintain liquidity, as it often trades less than 10,000 euros a day.

We have discussed this issue with the management team. They are aware of the limited liquidity and are therefore willing to sell small parcels of stock directly from their own holdings. You might wonder, “Why are they doing this? Why not simply buy the free float and take the company private?” I asked the same question initially, and rightfully so. However, when we approached management, they were very clear: the company has been around for a long time, and many family members who own shares are no longer involved in the business. They want to remain listed so that any shareholder wishing to sell can do so independently, without complications, and because listing requires transparent financial reporting, which benefits shareholders. For these reasons, one of their main priorities is to encourage trading so that the stock moves closer to its fair value. They have already made significant progress by listing on the continuous market and hiring firms to increase visibility within the investment community. Although the stock is still too small for most funds to consider, interest in the company has been growing.

An increase in dividends, fueled by the rise in earnings from their development operations, could be an interesting catalyst. The stock has already been performing well, delivering impressive gains over the last year. As you can see, they currently pay a small dividend, but it remains relatively insignificant.

I plan to publish an interview with the company’s management, where you will learn more about their approach to investing and allocating capital.

Finally, I must disclose that our firm plans to help the company grow in several of their divisions. We have connections in the hotel and real estate sectors in Valencia, which could lead to new projects and help increase their growth.

Disclaimer:

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The information provided in this article is for informational purposes only and should not be considered financial advice. The content does not constitute a recommendation to buy, sell, or hold any security or investment. Always do your own research and consult with a professional financial advisor before making any investment decisions. Investing in stocks involves risk, including the potential loss of principal. Past performance is not indicative of future results.