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Fishing Republic (LSE:FISH) is not a share I am interested in buying right now. But, it is a useful one to put into my watch list because it is soon to announce some horrid results which might push the share so low that net current asset value becomes significantly greater than market capitalisation. Another reason for putting it on the watch list, rather than jumping straight in, is uncertainty regarding both the quality of the business and the quality of the managerial team.
The next few months may reveal that the core of the business is sound and the managers are capable of identifying and focusing on those profit-centres which actually generate value, while hacking back the loss-making activities.
While Mr Market is busy being disgusted at the current sorry tale of woe, I’ll be looking for the signs of either a phoenix rising from the ashes or a takeover bid by the other major player in the fishing tackle retail market, Angling Direct.
Net current asset value
Fishing Republic has 18 ‘destination’ stores (each at least 4,000 sqft, normally located in light industrial areas) scattered around the country holding over 20,000 items of fishing gear and consumables. It also has websites selling much the same stuff – they generate around one-third of turnover.
The annual report to 31st December 2017 is overdue by a couple of weeks so I can’t use the most up to date numbers. However I can present balance sheet items from the December 2016 yearend and the June 2017 half-year end.
Market capitalisation is 52.2 shares multiplied by 8.5p at bid or 9p at offer price, i.e. £4.44m or £4.70m.
| £000s | December 2016 | June 2017 | |
| Cash | 2056 | 681 | |
| Receivables | 206 | 453 | |
| Finished goods for resale | 4257 | 5286 | |
| CURRENT ASSETS | 6519 | 6421 | |
| Less payables | -880 | -1599 | |
| Less deferred tax | -41 | -18 | |
| Less other payables & accruals | – | -82 | |
| NCAV | 5598 | 4722 |
If I was to follow Benjamin Graham and remove one-third of the inventories claimed by the managers I would reduce NCAV by £1.76m, bringing it a long way below market capitalisation. Thus FR does not even pass the first test of a NCAV investment – at least, not yet.
(There is an argument that knocking one-third off inventories is not necessary in this case: a friend, who was an early investor in FR, told me that the CEO claims he never has to reduce stock price to below cost because he can flog it on eBay at more than that)
The initially joyful story of Fishing Republic
The founder of FR, Steve Gross started selling flies and fly tying materials to wholesalers as a school boy. He is well-known in angling circles and once represented England.
The first shop he opened was in Rotherham in 1999. He and his wife, Zoe, built from there a small chain of larger stores for fishing tackle in non-high street locations. The current Rotherham site also accommodates head office and the warehouse for the other shops.
Rotherham retail produced £312,000 revenue in the year b……
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