newsletter 30 - Fletcher king - time to buy some more? 2nd december 2014

I first bought Fletcher King in August 2013 at a price of 30p.   Since then profits have taken off, but the share has already responded by rising to 52p.  The question is: do I want to buy?
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Market capitalisation (£4.78m) is now significantly above net current asset value, NCAV (£2.8m, with £3.3m in cash).

But off-setting that is the good operating performance (profits up 62%, dividend yield of 5.8%).  Can it qualify as a strong economic franchise share even if it no longer qualifies as a NCAV share?

(Background: Fletcher King advises and assist owners of commercial property.  It manages office letting, for example, by collecting rent, negotiating with tenants.  It values property and manages property assets for investment funds as well as running its own property fund.  It does something in every town in the UK, but its main activity is in London. Over 400 individual properties, 607 tenants, £68m rent roll, £954m of property)

Here is what I wrote in August 2013:

FLETCHER KING:

A Classic Benjamin Graham Net Current Asset Value Share?

Do we have a company here that is trading below its net current asset value, NCAV, while also meeting Benjamin Graham’s criteria of:

1. Good management
2. Good prospects for the business
3. Stability?

Any light you can shed will be welcomed. What have I missed?

Market capitalisation is £2.7m. Current assets are £4m (which includes £2.6m of cash). If we deduct all the liabilities we arrive at a NCAV of £3.1m, significantly greater than Mr Market currently values the company.

A further adjustment might be to reduce the receivables as recommended by Graham. Let’s remove 20% of receivables which amounts to £0.29m bringing NCAV to only slightly above market capitalisation.

However, an argument can be made for adding to the NCAV the £0.5m classified as non-current ‘available-for-sale investments’ (actually stakes in three property investment syndicates run by FK).

A further consideration is that the NCAVs shown on recent balance sheets have consistently been above £3m for at least three years.

In tomorrow's blog I'll look at FK in the light of Benjamin Graham's three qualitative factors.  These encouraged me to buy in August 2013, and remain valid.