Modern art investment firm V22 is in the process of negotiating a new lease for a 140,000 square foot studio building to replace a now concluded rental agreement for its present 14,400 square foot premises. The group, which earns revenues by leasing out studio space and by renting out its collection of artwork to companies, believes the significantly larger studio space will enable it to continue to attract artists and grow its base of revenues.

At the current mid-price of 2.5p, V22 is capitalised at £0.53 million. The significance of its latest announcement is that the company, which reported a post-tax loss of £52,398 for the 2009 financial year, now has greater capacity to drive rental revenues and thereby cover its operating costs. However, the primary attraction to the group’s shares comes from the value of its art collection. As at 31st December 2009 its portfolio of contemporary paintings and sculptures stood at £0.72 million meaning that the firm is trading at a 26% discount to the value of its portfolio alone. The current valuation is particularly noteworthy as the company invested £349,788 in the work thereby achieving a 104% gain on its investment.

The net asset value of the business at the 2009 year-end was 2.95p. While management deserve credit for their keen eye for picking valuable works from emerging painters we should highlight that the worth of its works is subject to regular reviews. Furthermore, the value of each of its pieces is well and truly in the eye of the beholder and so there is no guarantee that the group will be able to find a buyer willing to match an expert’s valuation. That said, the noteworthy discount to net asset value and the likelihood of increased future rental revenues should the new lease be sealed means that we can rate the shares as a speculative buy.

*V22 is a corporate client of Rivington Street Holdings (RSH), the owner of this website, and Tom Winnifrith the CEO of RSH owns shares in V22.