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I bought Arden (LSE:ARDN) for my net current asset value portfolio in September 2015 at 42.2p. There’s been a lot of activity at the company since Luke Johnson took over as Chairman, including the hiring of a new CEO and many senior executives. Now is the time to consider whether the share merits going into my 2017 net current asset value, NCAV, portfolio as well as my 2015 NCAV portfolio.
The shares currently trade at 43p – 45p, giving a market capitalisation of 32.3m shares x £0.45 = £14.5m.
The MCap jumped following the placing of 12.75m shares last month raising £5m. Four of the directors bought shares in the placing. Luke Johnson is now the largest shareholder after buying another 1.25m shares, holding 10.7%.
(Earlier Newsletters on Arden: 1st – 7th Sept 2015, 25th – 29th Feb 2016, 8th March 2016, 9th – 11th Feb, 13th March 2017)
Net Current Asset value
The first hurdle a NCAV share has to get over is that its current assets after deducting all liabilities amount to more than the current market capitalisation. This was not too much of a problem for the company in 2015, when it MCap was only £8.1m. Since then it has had loss-making periods, wiping out a good proportion of assets.
The picture is slightly distorted by the £5m placing following the interims. To make the NCAV relevant to the current MCap, with all those new shares now is issue, I’ve added £5m to the total to the NCAV in the table below. This gives NCAV of £10.8m or 33.4p per share.
Unfortunately, because it does not clear the NCAV hurdle I conclude that this company will not be bought at its current price of 45p. But I will keep the shares I already have given that (a) the firm’s business prospects and managerial capability are potentially good (b) I think Luke Johnson has the correct strategy for turning this loss-maker around, (c) I hold for three years minimum if the fundamentals remain reasonably OK.
Net current asset value calculations
| £’000s |
April 2017 |
Oct 2016 | Oct 2015 | Oct 2014 | Oct 2013 |
Oct 2012 |
| Financial assets designated at fair value through P&L (mostly long market-making positions) |
1,817 |
1,489 | 1,703 | 2,350 | 6,756 |
5,058 |
| Available for sale financial assets |
557 |
552 | 507 | 467 | 479 |
490 |
| Sold security transactions awaiting settlement at yearend – Arden has not yet been paid cash for shares, etc. it has sold |
1,563* |
1,409 | 661 | 3,4 |
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