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In my report following last September’s Fletcher King (LSE:FLK) AGM I wrote, “The people around the table [directors and shareholders] had seen a few London property cycles and, I could be wrong, but I sensed a consensus that we are getting close to midnight here for speculators betting on rising prices, where all turns to pumpkins and mice for those who do not get out before the clock strikes.” (Newsletter dated 17th Sept)
I think there is a very real risk that we are at midnight now – we will not know for sure for a year or so. The upswing in London property is quite long in the tooth and Brexit might trigger a significant mood-shift, leading to lower activity for FK’s experts helping with property transactions or experts helping with fund management.
This does not mean that Fletcher King is destined for losses and bankruptcy, merely that the “icing on the cake” transaction-focused business will be diminished. They will still have the more mundane regular property services business to see it through the next recession and so will probably remain profitable.
But, having doubled my money, I’ve sold the bulk of my holding at an average of 45.27p after costs. I bought at 30p (August 2013) and received 14.25p in dividends, so that is a 98% return.
I’ve held onto a few shares, because I’d like to stay in touch with the company, attending the AGM and chatting with David Fletcher and the other directors through the next recession, but for the purposes of my portfolio performance record this investment is realised at 45.27p.
While this company still has a lot going for it, especially with all that cash on the balance sheet (66% of MCap), I’m worried that Mr Market will punish it harshly for being in the wrong sector in 2017.
I wouldn’t be at all surprise if, one day, I buy shares again in Fletcher King. And I wouldn’t criticise anyone for holding this share through the cycle, basking in the dividend flow and warming themselves in the gleam from the cash hoard.
(Other Newsletters on FK: 2nd – 9th Dec 2014, 5th Jan 2015, 3rd – 6th Aug 2015, 11th Sept 2015, 17th Sept 2015, 29th – 30th Dec 2015)
I’ll start the more detailed analysis by looking at the recent profit numbers in the context of a longer history.
Profit and loss account
| £’000s | 2016 | 2015 | 2014 | 2013 | 2012 |
| Revenue | 4,633 | 3,380 | 3,653 | 3,031 | 3,105 |
| Less Employee benefit expense | (2,640) | (1,843) | (2,017) | (1,641) | (1,673) |
| Less Depreciation | (34) | (36) | (44) | (43) | (46) |
| Less Other operating expense | (1,230) | (1,057) | (1,083) | (1,085) | (1,012) |
| Produces operating profit | 729 | 444 | 509 | 262 | 374 |
| Add profit on disposal of ‘available for sale investments’ | 593 | – | 174 | – | – |
| Income from investments | 22 | 4 | 13 | 11 | 11 |
| Finance income | 11 | 13 | 15 | 19 | 10 |
| Totals to Profit before tax | 1,355 | 461 | 711 | 292 | 395 |
| Tax | (295) | (102) | (169) | (65) | (115) |
| Profit to equity shareholders | 1,060 | 359 | 542 | 227 | 280 |
| Earnings per share | 11.51p | 3.9p | 5.89p | 2.46p | 3.04p |
In the depths of the last recession Fletcher King was mostly profitable, averaging around £0.3m in profit after tax:
2008: £572k,
2009: £43k (before deducting loss on discontinued businesses of £475k),
2010: £242k,
2011: £331k.
Despite maintenance of……..
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