Acsion-THE SOUTH AFRICAN INVESTOR
Accounting profits vs cash
By Japhta Mamalema
Acsion (ACS) is a listed property developer and landlord.
As at 19 December 2019:
The company's market cap is R2.84 billion versus profits of R935 million for the financial year ended 28 February 2019 (2018: 823 million),
giving a PE ratio of 3.11;
Using the 2019 profits,
the company is generating a return of 30% on its market cap of R2.8 billion.
Excited and wanting to dig in and find out more about the company:
I shared this with my mentor.
“Look closer” he said
Look closer I did and boy was I disappointed.
Under accounting rules this qualifies them as Investment property.
A company must record its investment properties in its books as follows:
Say ACS builds a mall in Mankweng at a cost of R200 million.
At the end of its financial year it estimates that the mall is worth R220 million.
The R20 million fair value adjustment is treated as income in the income statement.
The property is reported at the amount of R220 million on its balance sheet.
For 2019, ACS made fair value adjustments of R837 million (2018: R744 million).
If we were to exclude the fair adjustments the profit of ACS would be R331 million, leaving the company trading at an earnings multiple of 8.6 times and enough to leave me less enthusiastic.