N Brown – Return on net tangible assets

PUBLISHED: 30 Nov 2017 @ 12:45 | Comments (0) |

The last two Newsletters record my rationale for rejecting N Brown (LSE:BWNG) on the basis of its shares being too high relative to its 11-year cyclically adjusted price earnings ratio, and relative to its proven owner earnings.

Today I want to examine if it makes very high returns on tangible assets.

£’000s Year end April	2018 first half doubled	2017	2016
INCOME STATEMENT
Profit after tax	-42.4	44.3	54.3
Amortisation charge this year for accounting goodwill following acquisitions	0	0	0
Exceptional items distorting profits (positive or negative)	78.4	14.2	7.8
Profit for shareholders	36	58.5	62.1


CURRENT ASSETS AND LIABILITIES
Inventories	104.7	105.5	101.5
Receivables	594.6	575.4	553.4
Cash needed for operations (assumed)	59.3	64.1	45.3
Other current assets	1.5	2.5	7.5
Payables	-120.4	-98.9	-99.7
Short-term debt	0	0	0
Other current liabilities	0	-13.4	0
Working capital for operations	639.7	635.2	608

Surplus cash (assumed)	0	0	0

NON-CURRENT ASSETS AND LIABILITIES
Property, Plant and Equipment	71.4	73.5	76.7
Goodwill in BS	0	0	0
Previously written-off acquired goodwill – add back	0	0	0
Other acquired intangible assets in BS	0	0	0
Previously written-off other acquired intangibles – add back	0	0	0
Long-term debt	-365	-355	-335
Other non-current liabilities	0	0	0
Net non-current assets for operations	-293.6	-281.5	-258.3

OTHER ITEMS TO CONSIDER
Defined benefit pension deficit	surplus	surplus	Surplus
Internally generated intangible assets capitalised to BS	153.4	141.9	124.9
Investments (in shares, bonds, etc.)	0	0	0
Operating lease non-cancellable commitments	Est. 24	24	26.3
Preference share capital	0	0	0
Minority interests in profit	0	0	0
Minority interests in net assets	0	0	0

£’000s Year end April	2015	2014	2013	2012
INCOME STATEMENT
Profit after tax	49.4	75.9	79.4
Amortisation charge this year for accounting goodwill following acquisitions	0	0	0
Exceptional items distorting profits (positive or negative)	17	-5.6	0
Profit for shareholders	66.4	70.3	79.4


CURRENT ASSETS AND LIABILITIES
Inventories	94.8	89.9	86.5	82.6
Receivables	609.9	599.0	548.7	522.0
Cash needed for operations (assumed)	40.4	45.3	61.3	57.5
Other current assets	0	0	1.2	0
Payables	-108.9	-98.0	-109.7	-106.6
Short-term debt	-7.0	-9.0	0	0
Other current liabilities	-13.9	-20.4	-19.0	-23.0
Working capital for operations	615.3	606.8	569.0	532.5

Surplus cash (assumed)	0	0	0	0

NON-CURRENT ASSETS AND LIABILITIES
Property, Plant and Equipment	70.5	63.2	66.4	62.8
Goodwill in BS	0	0	0	0
Previously written-off acquired goodwill – add back	0	0	0	0
Other acquired intangible assets in BS	0	0	0	0
Previously written-off other acquired intangibles – add back	0	0	0	0
Long-term debt	-280.0	-250.0	-250.0	250.0
Other non-current liabilities	0	0	0	0
Net non-current assets for operations	-209.5	-186.8	-183.6	-187.2

OTHER ITEMS TO CONSIDER
Defined benefit pension deficit	3.3	4.2	3.3	1.0
Internally generated intangible assets capitalised to BS	98.3	73.3	69.6	62.8
Investments (in shares, bonds, etc.)	0	0	0	0
Operating lease non-cancellable commitments	32.1	22.3	24.3	28.9
Preference share capital	0	0	0	0
Minority interests in profit	0	0	0	0
Minority interests in net assets	0	0	0	0

(I deduct £6m each year for exceptional costs)

Return on net tangible assets, RONTA = Profit for shareholders ÷ Average net tangible assets over the year (beginning BS and end BS averaged).

Return on tangible assets, RONA = Profit for shareholders ÷ Average net assets over the year (includes internally generated intangible assets capitalised)

£’000s	2018	2017	2016	2015	2014	2013
Profit for shareholders	36	59	62	66	70	79

Working capital, averaged over the year	637	622	612	611	604	551
Net non-current assets, averaged	-288	-270	-234	-198	-185	-185
Net tangible assets, averaged	349	352	378	413	419	366
RONTA	10.3%	16.8%	16.4%	16.0%	16.7%	21.6%
Internally generated intangible assets capitalised, averaged	148	133	112	86	71	66
Net assets, averaged	597	485	490	499	490	432
RONA	6.0%	12.2%	12.7%	13.2%	14.3%	18.3%

The average RONTA over six years is 16.3%. This period had………………..

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