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I’m pleased that Caledonian Trust’s (LSE:CNN) shares have fallen this morning because I’m interested in buying another portion of this company following a very encouraging AGM on Friday.
It was no problem that I missed the formal meeting (trees on East Coast Line caused delay) – apparently not much happened – because the directors had organised a two-hour buffet lunch. Great food, fine company and lots of information.
Brief outline of company
Caledonian Trust first came to my attention in 2013. A forty-one year old property developer, it had weathered the recent Scottish property recession by concentrating on obtaining planning permissions for its dozen or so plots around Edinburgh and Glasgow, (and by not having any debt apart from a small loan from its 79.1% shareholder).
Planning permissions take years to come through. As they do, it is usually not a good idea to rush to start building during a recession.
So the company has, for the most part, held on to them – selling maybe one house per year.
I bought shares at 70p in 2013 when the net current asset value was at least £16.9m (based on BS asset values) and the market capitalisation was £7.7m. The shares are now 115p to sell, 130p to buy
The key point to understand about this company is to focus on an accounting quirk: roughly half of its properties are classified as “investments” in which case they are valued in the BS at fair (market) value. So far, so normal.
But, crucially, the other half (“for trading”) are given at a BS value at cost. This is the cost when they did not have planning permissions.
Their true values are far higher than what the BS states – see earlier Newsletters for my rough estimates of market values (6 – 12th January 2015, 4-6th January 2016).
My stab at valuing the properties last month was around £32m (Newsletter 5.1.16). After deducting about £4m for all liabilities we are left with £28m of net current asset value.
Compare that with the market capitalisation of £15.4m.
After speaking with people familiar with Caledonian’s plots and un-renovated buildings I’m confident that, if anything, I’ve underestimated the property values – this builds-in an even greater margin of safety.
Hence my interest in buying some more shares.
Frugality
I was impressed to find that company HQ is in the basement of an 18th century town house. No extravagance there – most rooms do not have natural daylight.
Also, the AGM was held there, rather than a posh venue.
I discovered another penny-pinching policy: the cost of being on AIM, including Nomad, has been bargained down to about ………….To read the rest of this article, and more like it, subscribe to my premium newsletter Deep Value Shares – click here http://newsletters.advfn.com/deepvalueshares/subscribe-1
