newsletter 33 - Fletcher King: a powerful balance sheet with SHIPS

Fletcher King (LSE:FLK) has had a pick-up in its profits - appropriately enough for a well-managed company at this point in the property cycle.  But the directors do seem to like to remove much of that profit for themselves (necessary to retain the talent, don't you know).  However to somewhat offset this problem we have a very strong balance sheet.
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Fletcher King has a remarkable amount of cash compared with market capitalisation: Cash of £3.314m, with a MCap of £4.75m (9.2m shares x 52p). But there are other factors to consider:
Cash                                                                                        £3.314m
Receivables                                                                             £1.247m
Less all Liabilities                                                                    -£1.712m
Net current asset value                                                          £2.849m
To be more prudent remove 20% of receivables                   -£0.249m
Adjusted NCAV                                                                        £2.60m

There is another asset classified as non-current which could be regarded as adding to NCAV because it is reasonably certain and reasonably liquid.  This is £750,000 recently placed into a new ‘Syndicated Property Investment’ run by FK (a ‘SHIPS’).
It has created a number of these over the years.  The others are now all closed, with the last one producing a capital gain on disposal for FKs shareholders of £0.174m in the year to April 2014.

With SHIPS, FK invites co-investors to join it in buying and holding (and improving) property and then charges fees (£100,000 - £260,000 pa) for managing the property fund.  Previous SHIPS funds have produced good returns for FK and for external investors.

Effectively £0.75m has been taken from cash and used to co-invest in SHIPS, making this investment quasi-current asset (at a push).

Thus if we add £0.75m to the adjusted NCAV above we have £3.35m or 36.4p per share.
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Monday's blog will ask whether FK now qualifies as a Warren Buffett and Charlie Munger type of investment with a strong economic franchise surrounded by a deep and dangerous moat.