The market does not appreciate the true value of this pub group’s assets

Fuller’s estate of properties is officially valued at 1999 prices. A more realistic figure puts the shares on a huge discount, says Russ Mould

Regular readers will know this column is seeking to find ports in the storm of rising rates, galloping inflation and wobbling share prices by finding companies that can boast a strong balance sheet, asset backing and a valuation that looks attractive. One such candidate remains pubs-to-hotels group Fuller, Smith & Turner. Even if the shares have yet to bring us any cheer, as we are sitting on a paper loss in the wake of last autumn’s study, last week’s full-year results to the end of March offer plenty of grounds for encouragement: Fuller’s is back in the black and paying dividends again, despite lockdowns, shutdowns and the effect of the omicron variant on Christmas trading.

Trading in the financial year to March 2023 is also off to a good start. Total sales are up by 4pc on pre-pandemic levels, albeit with a little help from 2019’s acquisition of Cotswold Inns & Hotels, and that is despite the challenge posed by the return of VAT to 20pc.

Granted, utility bills and input costs are rising but higher footfall in transport hubs and London sites could help to compensate with strong contributions to the top line.

The danger is that input costs and the effects of inflation on consumers’ discretionary spending plans limit the speed and scope of the post-pandemic upturn in sales and profits.

Nevertheless, Fuller’s finances remain solid. Even including £81m of leases, it has less than £200m of net debt, while a new £200m bank facility provides further flexibility.

Perhaps best of all, management is working to highlight the value of the assets that sit on its strong balance sheet. As flagged last autumn, the company’s accounts still use property valuations that date back to 1999.

Even then, the £356m market value stands well below the £593m valuation given to its fixed assets and total net assets of £449m (or £420m once £29.5m of intangible assets are excluded).

The board is now suggesting that a more appropriate valuation for the properties is £996m, a figure that implies a net asset value per share of £13.35 once intangibles are excluded. That is miles above the current share price of 576p, to suggest that Fuller’s offers both protection from share price falls, thanks to the asset backing, and the potential for gains should revenues, profits and cash flow continue to recover.

The stock could yet provide pleasing returns for patient investors. Hold.

Update: Yellow Cake

This column is intrigued for two reasons to read reports that US president Joe Biden’s administration is seeking $4.3bn (£3.5bn) from Congress to buy enriched uranium and support America’s nuclear industry, in part by weaning it off supply from Russia.

First, the rehabilitation of nuclear power continues, thanks to its perceived zero-carbon status. Second, it is not clear where America will be able to find the product it is seeking, at least not without driving up the price.

The US has relatively little enrichment capacity, with Urenco in New Mexico to thank for what it has. Utilities and policymakers alike are clearly getting edgy as a result, especially as uranium production continues to run below demand and enrichment capacity feels similarly constrained.

Uranium prices jumped back above $50 a pound in response to the reports, perhaps in anticipation that America will look to hoover up any product available on the spot market. None of this does any harm to the investment thesis for Yellow Cake, which will soon hold 18.8m pounds of uranium oxide, a key material in the enrichment process, in its specialised storage facilities.

Adjusting the market value of those holdings for cash and debt provides a net asset value of around 430p a share, compared with 359.4p at last night’s close.

The shares therefore trade at a tempting discount to asset value. Hold.

Russ Mould is investment director at AJ Bell, the stockbroker

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