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My wife and I attended the Caledonian Trust’s (LSE:CNN) AGM a few days ago, asked a few questions and chatted with the directors, and immediately bought more shares in the company at £2.30. I figure they have a net current asset value, NCAV, of at least £3.62 per share, possibly much more.
I first purchased shares in Caledonian Trust July 2013 at 70p because I estimated market capitalisation to be comfortably covered by the NCAV. That is the case if NCAV is properly calculated, with all property assets included under “current” assets and estimated market values of what the sites could be sold for. There were hidden assets, then and now, because the balance sheet does not reflect true values.
Caledonian Trust bought over two dozen sites for development a decade or more ago. It has sold very little over the last ten years, preferring to gain planning permissions, carry out improvements to sites (drainage, widening entrances, etc.) and waiting for the residential market in Edinburgh and elsewhere in Scotland to pick up.
Over half the sites were, and still are, valued in the balance sheet, not at the current open market value, but at the lower of cost or net realisable value. This is very significant because many of them cost only a fraction of what they can be sold for today following the success of the directors in gaining planning permissions and the making-ready for building.
In the last three years the Edinburgh property market has taken off, with residential prices up by 5.7% in 2016, 9.0% in 2017 and by 9.6% in 2018.
According to the latest data described by Douglas Lowe, Chairman, at the AGM the market is still thriving with prices rising in Scotland generally by around 2% so far this year, and it being “especially good” in Edinburgh, a city that is the third highest rank for Gross Valued Added growth in the UK.
Edinburgh has being voted (in the Royal Mail survey) the most attractive UK city in which to live and work. “Over the last few years overseas migration to Edinburgh has totalled 22,575 and UK relocation 10,839 giving a 6.9% increase in population. Edinburgh University is considered by Savills as a leading UK university, especially in technology, which together with Edinburgh’s other universities make Edinburgh a “University City” …..Edinburgh has not yet fully recovered from the Great Recession or the negative influences of LBTT [Land and Buildings Transaction Tax] and of “Independence”, as Edinburgh prices are only 1.6% above the pre-recession levels whereas in Cambridge prices have risen 45%” (2018 Annual Report)
Outside of Edinburgh, where the company has about half its value, the residential market has been much slower to get going after the recession. For Scotland prices fell 0.5% in 2015, rose by 0.6% in 2016, rose by 3.1% and by 5.1% in 2018. The directors feel in no hurry to go ahead with developments in the further flung regions, but their time will come.
(Previous newsletters on Caledonian Trust: 6th – 12th January 2015, 4th – 6th January 2016, 1 Feb 2016, 9th – 11th January 2017, 30th January 2017, 26th April 2017, 7 – 8th Feb 2018, 28th Feb 2018)
With the share price at £2.30 Caledonian Trusts’ market capitalisation is £27m.
The start of the harvest in Edinburgh
Within Edinburgh and its catchment area we have seen some economic advances in the last two years, and this has stimulated movement in Caledonian Trust’s portfolio.
St Margaret’s House, Edinburgh
A 0.75-hectare on a main road 800 metres from Holyrood and the Parliament, with 92,000 sqft of office currently rented on short leases to artists. Caledonian has planning permission
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