Last week I paid 103.3p for shares in the owner of 81 buildings in and around Covent Garden, Capital and Counties Properties, or Capco, (LSE:CAPC). The latest set of accounts, for the half year to end June, declare a Net Asset Value per share of 241p – and that is after knocking 17% off the value of the 1.2m sq ft of lettable space the company owns in London’s West End in just the first six months of this year. So, at face value, the shares are selling at less than half price.
I have not taken things at face value though. Through the application of conservative safety margin principles I ended up lowering the value per share a long way from 241p, but still comfortably above the price I paid. Market capitalisation is 855m shares x 103p = £881m.
The share price history shows that CapCo has been thoroughly rejected by Mr Market. It was 470p in 2015. After the Brexit vote it dropped to £3 due to fears over the vitally of London. Then the lacklustre London commercial property market as well as Capco’s loss of half the money it put into Earl’s Court pushed it down to £2.50.
It picked up when Nick Candy showed an interest in bidding for the company in October 2019, to a market capitalisation of around £2.3bn, 270p per share.
After he walked away the decline continued to around £2. Then Covid-19 struck, and London office workers no longer took lunch at one of its tenant’s restaurants and tourists didn’t turn up.
The second lockdown has made the short-term outlook bleak and so Mr Market sold all the way down to 98p.
I believe this to be a good net current asset value investment with its share price so far below my estimate of net current asset value that there is a substantial margin of safety.
Net Current Asset Value, NCV
Benjamin Graham taught that we calculate NCAV by totalling the current assets then deduct all the liabilities. We then deduct one-third of inventories and one-fifth of receivables. At the same time, we consider the vital qualitative elements of (1) business prospects, (2) managerial ability/integrity, and (3) business stability
It is my belief that this approach suits most companies, but there are some that, because of the way their balance sheets are designed, allocate the vast majority of the core tradeable assets, especially property assets – their stock-in-trade if you will – to the non-current part of the balance sheet.
In these cases, and where the assets have market values that can be estimated with a reasonable degree of accuracy, I believe we can add them to the conventional NCAV. This is what I’ve done for Capco.
Net Current Asset Value
£m June 2020 December 2019 December 2018
Receivables (current) 160 139 38
Cash 295 153 33
CURRENT ASSETS 455 292 71
Deduct all liabilities -1075 -622 -681
Deduct one-fifth receivables -32 -28 -8
Conventional NCAV -652 -358 -618
Add property (investment, development & trading) 2122 2546 3336
Add financial assets (shares in Shaftesbury) 340 0 0
Add 80% of long-term receivables 133 199 179
NCAV plus long-term marketable assets 1,943 2,387 2,897
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