Character Group – A robust balance sheet and exceptional cash flow

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Character Group (LSE:CCT) has an impressive profits history, but is it financially stable and does it produce high cash flow?

Balance sheet data

£m   Feb 2019   Aug

2018

  Aug

2017

  Aug 2016   Aug 2015   Aug 2014
Inventories 11.2 10.9 9.0 10.3 9.0 8.9
Receivables 12.7 25.6 25.8 25.1 15.5 23.4
Cash 23.5 34.6 28.8 28.6 25.8 17.7
Investment property 1.7 1.7 1.8 1.8 1.9 2.0
Freehold land and buildings 2.6E 2.6 2.7 2.8 2.8 3.0
Current assets plus saleable non-current assets 51.7 75.4 68.1 68.6 55.0 55.0
Short term borrowings -3.7 -19.1 -17.2 -21.6 -21.2 -22.2
Payables -15.9 -24.7 -22.7 -25.4 -19.0 -20.5
Other liabilities (long & short) -3.8 -1.9 -3.1 -1.3 -2.4 -3.8
Current assets + saleable N-C assets – liabilities 28.3 29.7 25.1 20.3 12.4 8.5

The market capitalisation of Character is £3.506 x 21.3m shares = £74.7m

There has been a remarkable strengthening of the balance sheet over the years. Whereas in 2014 liabilities were just £8.5m shy of the current assets + saleable non-current assets figure, today there is over £28m excess of assets over liabilities.

And this build-up has been achieved during a period when the company has paid out between £5m – £8m per year in dividends and share buy backs.

Property

Investment properties are held to earn rental and/or capital appreciation. In 2018 rent was £231,000 (2017 rent £256,000).

In 2011 the Group bought the freehold on its New Malden 16,500 sqft offices for £3m.  This is more space than what they need so some is sublet to produce an income of £154,000, which accounts for the bulk of its rental income.

Also in 2011, CCT bought 325,000 sqft Vernon Mill, Oldham set in 5.5. acres for £1.7m. It already owned another nearby warehouse/logistic facility, Lees Brook Mill.  The company’s  three freehold properties have a BS value of £2.6m after the standard depreciation deduction. They could be worth more – I can’t find a mention of updates to fair value.

Rent is paid for the Hong Kong offices.

Borrowing

For most of the year the company does not need to borrow or, if it does, only a small amount, hence the low borrowing level at the half year end in February 2019.

But in the months running up to Christmas CCT sends out a great………………To read more subscribe to my premium newsletter Deep Value Shares – click here http://newsletters.advfn.com/deepvalueshares/subscribe-1

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