I’ve bought Fletcher King (LSE:FLK) shares at an average price of 32.65p. This property advisory and property management company had cash at the bank of £3.1m (and no debt) at the last accounting date, which is more than its current market capitalisation of 9.2m shares x £0.3265p = £3m.
In addition, it owns a stake in an office building in the City worth about £630,000. In October receivables pretty much matched all liabilities, leaving the net current asset value, NCAV, including the office building stake at £3.645m or 44.4p per share.
Even if we allow for the losses since October induced by the Covid-19 impact on the property market I reckon the share is under-priced relative to NCAV.
(Because it is such a thinly traded share I had to build up my stake over a long period, Feb 2020 – May 2021)
Net current asset value
£000’s Oct 2020 April 2020 April 2019
Cash 3,113 3,624 2,001
Receivables 501 680 1,809
Total current assets 3,614 4,304 3,810
Minus 20% of receivables (Ben Graham conservative approach) -100 -136 -365
Conservative current assets 3,514 4,168 3,445
Minus all liabilities (ignore lease liabilities and assets) -499 -724 -1,228
NCAV 3,015 3,444 2,217
Add property 630 630 1,603
NCAV + property 3,645 4,074 3,820For the current year, FLK has already reported a loss for the first half (until 30th October) of £0.41m, and in a recent trading update the directors say they expect that they’ll report in second half of the year a trading loss.
On top of that we have the prospect of a write down of some of the property value, which still has two floors vacant. All in all, “the Company believes that losses for the second half may potentially be similar to the first half” (Trading update 3 March 2021).
So, from the above NCAV + property number I’ll deduct a further £0.41m to leave £3.235m or 35.16p per share.
It’s often the case that NCAV shares show a history of losses which induces investor fear that the losses will continue and therefore the cash and other assets will be whittled away.
But with Fletcher King we see a history of earnings. The last year was an exception but can be regarded as a one-off bolt from the blue for a company that thrives from commercial property transactions, of which there were few in 2020 and early 2021. There are good reasons for expecting the company to return to profit once the crisis is …………To read more subscribe to my premium newsletter Deep Value Shares – click here http://newsletters.advfn.com/deepvalueshares/subscribe-1
Prof. Glen Arnold
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