Key points:
- FSTA clearly suffered from lockdown and business slowdowns
- They claim to have that behind them now
- They've also raised their property valuation to £1 billion
Fuller, Smith And Turner (LON: FSTA) shares are down 30% over the last year, 50% or so over 5 years and well over 50% from their peak in September 2019. Well, that's interesting, obviously, but then we didn't really think that a pub and hotels group was going to come out of lockown unscathed, did we?
The big question now becomes what happens in the future? It's possible to take a gloomy view. That the day of the pub is simply waning – or at least of the type of pub that Fuller's specialises in. Increasing costs just mean that people will do more of their drinking at home. Commuting declining will mean less passing trade at the London pubs.
It's also possible to take a much more optimistic view. The shares were up at £12 and above back before the panics started. Yes, of course, there was some damage to the business by lockdown. But as their results show they're now back into profit. There was a build-up of debt during lockdown – again, obvious – but they've got a grip on this and are reducing the pile. They've got net debt (excluding leases) down to £131.9 million and negotiated a £200 million bank facility for the next 4 years.
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Barring further lockdowns, they look set then. Fuller Smith and Turner is a well-known brand, they've got working capital, they're back into profit. Why wouldn't this continue to work?
Now we come to a rather more controversial part of their claims. The management are pointing out that their in the books valuations of their properties are at 1999's prices. So, they've done a revaluation and think that the properties are worth £995 million. That's about £400 million above the value of the entire company. Which could lead us to say two different things about Fuller's shares.
We could take the view that if that's the property backing then clearly, they're worth much more than the present value. They've been held back by lockdown, and now a revaluation of the company will occur, and we want to buy Fuller's shares to be a part of it. It's also possible to be entirely contrary here and show that if management is sitting on £1 billion of assets, then they'd better pull their finger out. Because making £11 million on a billion of assets is around a 1% return. We'll soon be able to do better than that in a bank account.
So it is possible to take this either way. That high asset value could be taken as evidence that the company is worth much more than the current market valuation. Or, that actually market valuations work by profit, and by that measure, it's fully valued. As so often, it just depends upon which things you wish to emphasise in any valuation.
A reasonable and middle-way valuation of Fuller's shares would probably be that there could well be a recovery – based upon both trading updates and that revaluation of the properties – but that if there is, it's likely to take some time. This isn't something we would expect to leap today or tomorrow but might well be worth having some money in.
