I bought into J Smart (LSE:SMJ), the Edinburgh-based property company, at a price of £1.66 a share or a market capitalisation of £1.66 x 40.7m shares = £67.6m. The main attraction, apart from being well-run and nicely profitable is the exceptionally strong balance sheet with 297p of net current asset value per share providing a good margin of safety.
Net current asset value
The company classifies its office holdings and industrial units as “non-current”. I regard this as unreasonable in the case of a company which invests in commercial property to receive a rental income and is always open to selling buildings if the price is right – they are tradable assets. So, in the table below I include all its “Investment properties”. These are revalued each year.
I have followed Benjamin Graham’s automatic distrust of the receivables by deducting 20% as unlikely to be paid.
However, I have not reduced the inventories number because, in this case, the inventory is mostly recorded in the balance sheet as the cost of developing land and half-built industrial units and offices. It is reasonable to suppose that the market value of these is at least the expenditure laid out on them so far........
The current share price is at a 44% discount to NCAV.
But we still need reassurance on financial stability; managerial ability and integrity, and; business soundness.
J Smart’s investment property holdings
At one time J Smart concentrated on being a constructor of commercial property for other organisations. Today, that business is diminishing after years of losses. Now the main attraction for share investors is the large collection of industrial units and offices it owns and rents out in the Scottish Central belt.
The company holds about 1m sqft of property available for letting. Three-quarters of the value is in industrial units; the remainder offices.
Investment property is revalued by the directors each year, with a sample checked by professional valuers..................................................................
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