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The FTSE 350’s cash kings

We take a closer look at two of the FTSE 350’s richest companies.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

Revenue and profits tend to make their way into the headlines when companies release their results for good reason. They’re an easy way to tell how healthy a business is. But as the saying goes – revenue is vanity, profits are sanity, but cash is king. Cash-rich businesses normally have more room to manoeuvre than those living paycheque to paycheque. That can make them an appealing choice for long-term investors.

A pile of cash that’s sitting around doing nothing isn’t of much use, though. What’s important is management’s plans for its war-chest, which aren’t always entirely clear. There are lots of ways companies can use their cash – making an acquisition, investing in infrastructure, and returning it to shareholders through dividends or share buybacks to name a few. All of these tend to be positive from an investment standpoint.

With that in mind, here’s a look at two companies with hefty cash piles.

This article isn’t advice or a recommendation to invest. Remember investments can go down as well as up in value, so you could get back less than you invest. If you’re not sure if an investment is right for you, seek advice. Past performance is not a guide to the future.

Investing in individual companies isn’t right for everyone – it’s higher risk as your investment is dependent on the fate of that company. If a company fails, you risk losing your whole investment. You should make sure you understand the companies you’re investing in, their specific risks, and make sure any shares you own are held as part of a diversified portfolio.

Berkeley Group – building on a strong foundation

Many of the FTSE’s housebuilders sport healthy cash positions thanks to the red-hot property market. Berkeley’s no exception. The group had a net cash position of £1.1bn at the end of the last full year although, net cash doesn’t necessarily tell the whole story for housebuilders. Most housebuilders are also buying land on credit, reported as ‘land creditors’. This is essentially another form of debt and should be taken into account when you’re looking at how much cash a company has.

At the full year, Berkeley’s land creditors were worth £388.2m, which takes the group’s net cash position to slightly over £800m. This is still a substantial cushion, and together with Berkeley’s other attractions, we think it makes Berkeley attractive.

Berkeley caters to the higher-end of the property market with more expensive properties than peers. This has underpinned the group’s 22+% operating margins, some of the highest in the industry.

Average Selling Price

Source: 2020 company accounts

Berkeley’s already started doling out some of its cash to shareholders with a £451m capital return programme earlier this year. The shares offer a prospective dividend yield of 5.9%, though no dividend is ever guaranteed and yields are not a reliable indicator of future income.

The cash pile means Berkeley’s shareholder rewards shouldn’t come at the expense of future growth. Management is also planning to use excess capital to fund new growth through land purchases.

With all of this in mind, it might surprise you to hear that Berkeley shares are trading below their long-term average. That’s likely because the past year has offered goldilocks conditions to the nation’s housebuilders. With a potential interest rate increase looming and inflation still a question mark, there are some risks ahead.

Compared to some peers, Berkley shares trade on the more expensive end of the spectrum. We think that premium is justified given the group’s unique position and strong underlying business. But it does mean there could be more downside if the market takes a turn.



Games Workshop – playing well

Games Workshop makes and sells fantasy war game miniatures through its own retail stores, online and through independent retailers stocking Warhammer products. The game enjoys a cult following of loyal fans willing to shell out upwards of £30 per figure, in addition to accessories and paints. This markup means gross margins hovered around 70%.

The group’s operating costs have been relatively subdued as well, though inflation is expected to nudge them upward in the year ahead. Even still, operating margins of over 42% are enviable for any retailer.

A closer look at the margins versus the competition

Source: Refinitiv, 25/11/21.

The result is a cash-generative business with no debt and an £85.2m cash position. This model’s allowed the group to give back to shareholders with a prospective 2.6% dividend yield and the potential for special returns when the company finds excess cash on the books. Remember no dividend is ever guaranteed. Yields are also variable and not a reliable indicator of future income.

Investors are expected to pay for Games Workshop’s strength though. The shares change hands for 23 times expected earnings, well beyond the long-term average. While that’s expensive for a game maker, it’s worth noting that the valuation’s come down considerably over the past three months.

Of course, there’s a reason for this. A big part of Games Workshop’s value comes from its unique intellectual property. The group helps shelter its brands with an iron fist, but the age of the internet’s made that difficult. Fan-created content has recently come under fire as the company looks to protect licencing rights. Part of the group’s strategic plan involves building out its licencing arm with video games, animation, and other content. If fans are creating similar experiences and putting them out in the world for free, it will undercut this strategy.

Fans were upset and there were murmurings of a boycott on social media. Until the group reports on the current period, it’s impossible to tell whether the discontent is coming from a loud minority or a revolt gathering pace. If it’s the former, the drop in valuation we’ve seen could offer some opportunity.

A potential boycott isn’t the only headwind though. The group’s also up against pressures from inflation that will either eat into margins or up the already expensive price of its products.

Plus, the end of lockdowns mean fans will have less time on their hands, potentially disrupting demand. The risk of a post-lockdown lull is very real, and something to consider.


What investors need to remember

How much cash a company has is just one thing investors should think about before considering buying shares in individual companies. Ratios and figures shouldn’t be looked at on their own, it’s important to consider the bigger picture. It can feel like there’s a lot to consider when making investment decisions. If you don’t fancy doing all the heavy lifting yourself, you can use our share research to help with your investment decisions.

Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Past performance is not a guide to the future. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

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    Important notes

    This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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