Fletcher King Share Discussion Threads

[profdoc] 18/12/2015 10:33

We all know that the staff will grab a high proportion of the value created. But consider this:
After their grab:
Operating profit from normal business in six months: £582,000
Profit on sales of SHIPS 14: £590,000
PAT £945,000
NCAV: £3.8m (with cash of £4m)
MCap: £4.4m
Glen

[norbert colon] 18/12/2015 10:15

My view is that as an investor, if you are not happy about something then speak to the Board and if you are still not happy move on as there are plenty of other opportunities. I was very unhappy about Board pay at Norcros (NXR) and hence sold - problem solved; similarly I have avoided WYG (even though I like the niche offering) as I just don't like the Boards apparent underlying greediness.

FLK has been a very good investment for me to-date and I plan to remain a Shareholder until such time as the story changes.

Seasons Greetings to all.

[bisiboy] 18/12/2015 09:06

Norbert,
thanks for your comments and I noted the response from the board at the time
I don't think this has been handled well at all they should never have increased the dividend to only cut it again the following year
as for the latest results it would have been better to pay a 7.5p special last year and a maintained 1.5p interim.
the only message I can read into this is that they view the longer term profitability of the business to be able to sustain the lower dividend but not the higher one.

[westcountryboy] 18/12/2015 07:53

Interesting to see the effect of a few negative posts plus some minor selling in such an illiquid share. Five sales of about 10,000 shares since results and the price falls by nearly 25% in 36 hours! This is not a share for daytrading. At the current sell price of 46p the company is valued pretty much at cash: £4.24m against £4.07m.

Since the £4.07m is left after whatever has been paid in employee bonuses, I can't get too worked up about the latter. It's about the same as we shareholders got in the special dividend, without doing any of the work.

[churchill2] 16/12/2015 15:05

Blimey are they still at it

Go back to post 339 in 2007. The share price was near £1 then.

[longinthetooth] 16/12/2015 12:26

Wonderful set of results only marred by the directors approach to their own remuneration packages.Special Dividend and its timing clearly a device to pacify unruly shareholders!All shareholders need to accept this is a private fiefdom hiding behind a quasi listing which is tantamount to a matched bargains market.As any sophisticated investor will appreciate the Capitals property market whether commercial or residential is NOT a one way ticket and is in all probability in the advanced stages of a bubble.The Provinces will not be able to fully compensate for any tangible downturn in the South East.

[horndean eagle] 16/12/2015 10:12

Employee benefit rose nearly 800k from last year. That is effectively directors taking huge bonuses. Shocking that the scumbags have taken more out in bonuses than the company made from the recent disposal. I wonder whether their policy would work in reverse if they made losses.

[norbert colon] 16/12/2015 09:42

Bisi

The divi was 0.75p in the HY for 2012 and 2013 and then in 2014 they hiked it to 1.5p. At the last AGM the topic of dividends was discussed i.e. hiking it and then cutting it and the point was made that investors would prefer a smooth / progressive dividend policy rather than up and down like the proverbial yo-yo (special divis excluded of course).

The 1.0p for 2015 is the BoD continuing to be conservative with their cash management although I agree that they could easily have left it the same at 2014 given the strong balance sheet.

I suggest you raise this to the Board for their comment.

[bisiboy] 16/12/2015 09:11

why the dividend cut?

[mac_steven] 16/12/2015 08:59

Interims out.Look excellent to me.

[norbert colon] 11/12/2015 13:36

Investors may be interested in my brief commentary on the London Commercial Market from the WTM AGM today:



Also some interesting commentary from Deloitte:

hxxp://www2.deloitte.com/uk/en/pages/real-estate/articles/crane-survey.html

My perception is that concerns over the London market need to be listened to, but at present there is no specific cause for pessimism.

I look forward to seeing the HY report which should be out in the next week or so.

[norbert colon] 01/12/2015 15:56

Prof

These are a few extracts of publicly available (and current) info I have found on the commercial sector:

"Tenant demand continues to drive forward commercial development, particularly in the City of London....

....in London, the West End continues to reinvent itself including St. James Market which provides 31,000m2 of mixed use retail and commercial space in two significant buildings between Haymarket and Lower Regent Street

.....availability falls to 14 year lows......active demand...

....commercial development now commencing outside London in Birmingham and Manchester"

That said I think its right to be little cautious as I think London is at the top of the cycle (outside London still growing) and other sectors such as retail have more promise going forward.

[drmaccers] 01/12/2015 14:48

In liking this company. Hopefully I'll buy soon

[profdoc] 01/12/2015 12:02

Thank you, Norbert,
Also, I'm starting to wonder if the caution on the London commercial property market exhibited by the directors of FLK at the AGM was somewhat misplaced - I'm getting the impression it has taken off again.
What do you think?
Glen

[norbert colon] 01/12/2015 08:30

I see Begbies Traynor (BEG) have just announced an acquisition of Taylors Business Surveyors and Valuers ("Taylors") for a maximum consideration of £1.85 million.In the financial year ended 31 March 2015, Taylors reported annual revenue of £1.5 million and pre-tax profits of £0.2 million. It had gross assets of £0.6 million as at 31 March 2015.



Note that gross assets are only 40% of sales compares to FLK where gross assets (GBP 5m) are 150% of 2015 sales.

[norbert colon] 19/9/2015 21:06

Hi Glen.

Good meeting you again and thanks for the notes. Over the last year this has become one of my larger shareholdings and I can always sleep well at night.

I am however quite heavily exposed to the property and buildings/infrastructure sector and acknowledge that there is a need to keep a close eye on the cycle but also that FLK are well managed, have a very good balance sheet and offer a decent income stream.

Further points from AGM noted below:

• They noted that they have property in SHIPS4 that is regional (outside London) and that the capital appreciation has not been anywhere need as strong as London.

• A point was raised about potentially using some of their spare cash for buy backs or for short term lending such as bridging loans (they could get 9-12%). DF noted that they were cautious of buy back due to District + Urban already owning +20% of the company. They are otherwise just very cautious with their cash and don’t seem concerned about it earning low levels of interest. As previously discussed in the AGM last year they also like to have a 9 month buffer of cash.

• They run a very tight ship with respect to receivables – almost nothing owed over 90 days.

• They do not see the value in getting broker forecasts as they can be costly for potentially very little upside.

• Their lease on 61 Conduit St expires in 18 months and they currently have 1000 sq/ft of surplus space (some of which is sub-let) – they will either move to smaller premises or try to secure a good deal and stay where they are. The 4th floor of the building is currently vacant and has been for a while.

• They were asked if they have considered taking on another NED as they only have one (Dave Stewart) and he has been with them for a number of years. They said they have considered it but are conscious of cost – no current plans.

• M&A – they may potentially be interested in buying a small fund or asset management company if the right deal came along.


I look forward to another year of progress.

All the best.

[profdoc] 18/9/2015 09:05

Hi Davidosh,
I used to write on my personal website for free. Then ADVFN wanted me to write one of their Newsletters, which I agreed to do. Now they charge £6 per month. They don't like it if I put everything out on the BBs - sorry.
Glen

[davidosh] 17/9/2015 13:29

If you want to put the whole report in the ShareSoc Agm library that would be very useful www.sharesoc.org

[profdoc] 17/9/2015 13:21

Hi,
Yesterday's AGM was very interesting. I've written a report on the meeting, but it is 1557 words so ADVFN are not keen on me publishing it here (they prefer it at Anyway here is some of it:
David Fletcher and the other directors warmly welcomed the four shareholders who turned up to the AGM yesterday.
They were very willing to discuss the important and intellectually challenging issues facing the business. So for about an hour we probed many of the dilemmas that come with managing an organisation such as Fletcher King.
(By the way, it turns out that the board have been reading what I’ve been writing on the company – so they have probably also seen the bulletin board comments made by others.)
Is the London commercial property market near to the top of a bubble?
This is always an extraordinarily difficult question to answer – except, of course, with hindsight.

But there are straws in the wind. There is a post-election lull in the lettings market. Also yields are approaching record lows. Or was that 2007 yield levels? (which might be the same thing, I’m not sure). Whatever it is, prices are high.


On the other hand, rental growth for smaller office suites has been going great guns over the last 2-3 years. This fits with the evidence of good demand from both tenants and office buyers in the performance of the Leadenhall Street property in SHIPS14.


A key point of hope is that the supply of new offices is not as great as in the lead up to past peaks.

The people around the table 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.

However, not everyone in the property game, or those supplying services to those investing in property, needs a rising market to make a living (for example, we’ve done fine in Leicestershire with a flat market).

There are many working at FK who collect fees for looking after clients (collecting rents, doing rating appeals, valuations) whether the market is in an up-phase or is down. I pointedly asked what profits were like in 2009 and 2010. In both cases revenues were in the ballpark of £3m and underlying profits were made. This is a very conservatively run company, strong enough to cope with recession.

However, the icing on the cake for a business like this is say when a number of banks ask for FK property valuations so they can lend to investors keen to buy, or when fund managers (e.g. pension funds) are enthusiastic about investing in London property and need various services, or when investors are keen on piling money into SHIPS for FK to charge a management fee.
Other issues discussed:
The dilemma of paying enough to retain rainmakers.
How much to invest in SHIPS?
Dividend policy?
Growth through acquisition?
What about other routes to growth?
Quality of management?
Glen

[deadly] 08/9/2015 15:19

Very strong since that statement and will be going XD for 8p tomorrow night.
I've held these for many years and think there's plenty of value still.

[horndean eagle] 01/9/2015 06:57

A rare bit of good news. It was in the pipeline though given huge moves in London market and leasing being ahead of forecasts. It look like they may have returned the profits made on the scheme. There will be additional performance fees but no doubt the directors will get a fat wedge of that. And tax. Not sure whether shareholder pressure for a return is behind the return of these profits but hopefully it is something that will carry on in future.

[longinthetooth] 14/8/2015 09:14

Recent posts all very interesting and tell it like it is!I too have followed FK over the past 15 years,twice building up stakes approaching 1.5%,and during that time nothing much has changed other than an increase in the level of cash held.Interesting that during this period DF has not added to his shareholding despite long periods when the share price has languished at 25p.Obviously given his grip on the company he does not need to take that risk.District & Urban seem to be a passive rather than activist shareholder so far as I can tell otherwise they could easily have been a catalyst for change.FK always seem to go by convention when it comes to dividend cover(2x) and have been known to pass the dividend even with their cash pile.I suppose a return of capital to shareholders remains a possibility although only when DF is ready to go!Exposure to the commercial property market in London allied to fickle Chinese investors,poor liquidity and the boards scant regard for shareholders leads me to the conclusion that the shares are fully valued for now.

[profdoc] 14/8/2015 08:29

Norbert and Westcountryboy,

Thank you for your well-informed and considered comments. I think that a vote against remuneration policy this year is as far as I'm going to go - a shot across the bows to not keep pushing their luck with shareholders.
Removal of directors is a big step and needs careful consideration, but we'll see what their attitude toward shareholders is at the AGM.
More London based SHIPS makes sense if the London property cycle was younger - their latest bulletin says the market is 'fully valued'. So I worry about being stuck in an illiquid downturn.
Perhaps there is more scope for SHIPS outside of London?

Thanks again
Glen

[westcountryboy] 14/8/2015 07:31

hi profdoc

I just wanted to thank you for this excellent write-up. I have dabbled in and out of FLK over the last 15 years and even went to an AGM once (the only shareholder there, and they were very surprised to see one). Nice offices.

On the issue of salary, I agree that the director bonuses are too generous, but the other 15 employees seem to be on an average of just over £50k which since they are mostly professionals above middle age working in central London does not seem so much of a problem as to make a successful movement at the AGM possible. Especially since they will be quite a large proportion of the attendees... I don't know much about District & Urban Group the main shareholder but they have held for a very long time and must be content with the way things are run.

The main thing that strikes me about FLK is that it is an extremely conservative business. As you say, the dividends are not bad and frankly that is how the stock should be seen, as a sort of bond. If you look at the chart over 20 years there have been three periods of excitement corresponding with unusual gains, and the rest is routine.

The cash pile has always been there: there was a TMF post on it in 2004, saying how undervalued it was and the cash pile was a potential outer!

The interesting issue to me is whether shareholder activism can do anything, not about the cash pile or the bonuses, which I doubt, but about the lack of entrepreneurialism. In this respect the key thing may be that there have been two SHIPS funds in successive years - as you say. That is the promising development for the future I think, so let's hope the commercial property market stays buoyant and they get the taste for more.

One final question: I can't find any figures from previous years' annual reports that would allow a comparison with the figures quoted on the property page of the website:

8 million sq ft occupied by ...
607 tenants generating a ...
£68 million rent roll

etc

It would be interesting to know if these have increased much over the last couple of years.

cheers
WCB

[norbert colon] 13/8/2015 21:30

Hi Glen.

An interesting write up - many thanks. I like your analysis and cant really add much more. I have to confess I did not see Directors salaries as an issue at FLK but having reviewed the total boardroom pay of 3 other micro-caps of less than £6m mcap that I hold (DSN - £527k, BVM - £441k and C21 - £423k) it is clear that the FLK board are paid pretty handsomely although I will counter that slightly by adding that they do not have loads of nil cost or other options which is one positive. I am not sure I agree with reducing boardroom headcount (pay - yes) and in fact wonder why they only have one NED who has been with them for a number of years - I would like to see another NED to bring some independence to the board.

Also of interest with respect to staff costs is that on average each FLK staff member accounts for £112,000 of costs. This is very high compared to the above mentioned companies where the average staff cost per employee (inc. Directors) is only £48,000. Again to counter this the other 3 companies have 3-4 times more staff and hence this is not a totally fair comparison as the Board costs at FLK represent a high % of the total cost.

Clearly they need to carefully consider returning some cash to shareholders as you have argued - an AGM discussion point.

Concerning the London commercial property market have you read their latest bulletin... hxxp://www.fletcherking.co.uk/bulletin/July_2015.pdf

I sold some shares (bought exactly 3 years ago at 24.9p) in Jan 2015 at just over 60p and have recently bought back during the most recent dip at just over 43p. I still like the company but you raise a number of good points and lets hope DF and the board are willing to listen and take some action to address them.