MDL expansion

Re: Doing sums

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The reasoning being that the investor could liquidate the marina asset and invest the same capital in any other asset type. You will have noted that I referred to the income return in my earlier post.

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I can see that. But my point is (as I don't think you are disputing) it is the very profitability of the business that has made the capital value so high.

To take an extreme example, let's say a marina is making £800,000 profit a year, there is no debt, and the marina does not own any land worth mentioning, just a few pontoons and Portakabin wash block which have little value. The owner has an unchallengeable right to run a marina in the harbour for an indefinite period. An investor is going to be willing to pay, very roughly speaking, somewhere in the region of £9m just for the right to carry on the business on that spot (OK, a little bit of that goes towards the pontoons and portakabin), because he sees an invesment where he can get 8% return, and he views that as acceptable return provided the investment is sufficiently low risk (eg. no one can take the right away). The capital value of the business is therefore £9m.

But to draw the conclusion from that that the business (which has had a minimal capital investment) is not profitable because the investor is only getting an 8% for the price he paid for the marina is misleading! He had to pay that much for the marina BECAUSE it is so blimmin profitable...

Now to get a profit when he sells his investment he has to sell it on to someone else for £10m - he has to make it even more profitable - ie. charge until the pips squeak!

That's obviously market forces at work, but nothing to do with marinas not being profitable...
 
Re: Doing sums

Understand where you are coming from Simon, i'm just not so sure that with current UK land price trends that the profitability or otherwise of the marina affects the land value as much as you think....

I guess it probably varies.... in a run down area without much else going for it, then possibly yes..... in a highly developed area, the land is probably worth a high value primarily because of its location, not its current usage...

At least thats what I would assume... /forums/images/graemlins/grin.gif
 
Re: Doing sums

I'm sure that you're right that each marina is a bit different. But then we come back to the basic idea that a marina (as opposed to a boatyard) doesn't really NEED any land worth mentioning in order to function. It just needs access. And it generally doesn't interfere with or stop surrounding developments. So I think the land value issue is a bit of a smokescreen used by marina companies to muddy the underlying economics.

In fact, I think that land value is not the only smokescreen - arguments about debt repayments are also a smokescreen - businessmen don't take on debt in order to make themselves less profitable and evoke our sympathy. Businessmen take on debt when they think they can gear their business to leverage even greater profit returns from however much of their own money they have available. So I think that when working out how profitable marinas are we also have to ignore the borrowing/repaying debt side of it.
 
Re: Doing sums

So basically all those huge marina fees are there to finance the car park!

Could be. Since I only use a push bike and trains do you think I could reasonably ask for 80% off? /forums/images/graemlins/wink.gif
 
Re: Doing sums

Simon,

Yes debt repayments are irrelvant apropos profitability but are highly relevant to cashflow and debt servicing ratios. Debt servicing constrains the ability to borrow and therefore impacts gearing and equity profitability.

As for your contention that someone with a right in perpetuity to create the £9m profit without land cost - that would not be a commercially realistic situation unless someone had been very foolish and created such a position in the first instance. Any such right would be highly valuable and should attract the £Xm valuation as discussed earlier.

As you say this is not a function of land values - it is more a function of access to the water and therefore the ability to create revenue returns. Just as in Knightsbridge a two bed flat can be £1M - it's not about bricks and mortar cost it's about access to a highly desireable location.

rob
 
Re: Doing sums

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As you say this is not a function of land values - it is more a function of access to the water and therefore the ability to create revenue returns.

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Hopefully we are more or less agreed on the fact that the core asset of a marina is its right to carry on the business. And that this core asset is extremely valuable because in the current state of the market it generates lots of net income.

Now if I have understood you correctly you're saying that in working out the profitability (in effect something like the p/e ratio, or whatever you call it for these kind of assets) you have to compare it's net income to the current market value of the asset.

And I'm saying that the current market value of the asset is very high because the amount of net income that it generates is very high, which is a vicious circle. So really in order to decide whether marina operators are making a killing, one should ignore the market value of the intangible asset - the right to rip you and me off - itself, and compare the income instead to other factors like the amount of physical infrastructure put in by them, the level of service provided by them etc., and we should ignore their exploitation of a semi-monopolistic position.

Is that a fair summary? Sorry to be slow, just trying to get my head round these concepts!
 
Re: Doing sums

Simon,

I can't agree with your last paragraph. It is a fact that marinas are currently valued at very tight yields (which you can cosider the same as PE for ease) because they are a highly favoured asset class. In essence they are classed as reliable cashflow low risk investments and therefore the PE has steadily increased until yields are now approaching sub 6% and when you consider that this is below the cost of finance that's pretty amazing. (This is pure risk:reward theory) The truth is that investors are assuming that capital values will increase and compensate for the poor income returns. So, no, they are not "ripping" anybody off - they simply have a very high value asset because of the desire of investors to hold the asset class and therefore they have to drive the income to match the capital values. I can see your point of view from a boat owners perspective - I see it more from the investors view which of course is driven by the market. What will be interesting is to see if the red diesel changes cause demand to fall and if that were to happen then values may well fall as well. I would welcome this; I take the view that sub 6% yields for marina investments is not sustainable in the long term. Watch this space.
 
Re: Doing sums

OK, I think that I've understood that, in layman's terms, you're taking the valuation of an investor who has bought shares in the marina company and has paid a high price for the shares.

The shares had a high price when he bought them because the company had at some point in the past acquired the right to "rip off" (from my/the boat owners' perspective) the boat owners. The investor has paid good money for that right to rip off and wants to see a return on his investment, and the rate of return that he receives for the small fortune he has paid for the shares is only a relatively modest one because the share price was so high.

I'm focussing on the fact that I don't like the fact that the company acquired this valuable the right to provide me with a poor service at high cost in the first place!
 
Re: Doing sums

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I'm focussing on the fact that I don't like it that the company acquired this valuable the right to provide me a poor service at very high cost in the first place!

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But if you weren't prepared to pay that price they could not charge it.
 
Re: Doing sums

Yes, agreed, which is why it seems to me it all comes back to what they think they can get away with - and not I think at the heart of it high property prices in the south, or the proposition that marinas aren't really generating as much income after expenses as one might expect etc.
 
Re: Myopic capitalism

Simon you are putting into words what I feel about this subject. I think the finance people here need to take a step back and ponder how the UK malfunctions compared to France.

Starting with a community asset like a derelict fishing basin, the French probably wrangle some Euro development cash to renovate the main infrastructure of the dock as compensation for lost fishing quotas. Then the regional tourist board might chip in for some shore-side showers providing these can be used by the adjacent campsite. So now we just need to plonk in 200 floating berths and add some staff on the local municipal payroll.

Because the marina night watchman lives in a cheaper house where the plot accounts for just 10% of the valuee (unlike 50% in the UK) and because he doesn’t need private medical insurance because the French NHS works and because he can travel to Paris on the train a couple of times a year at a fraction of UK rail fares, our Frenchman costs less to employ.

So how much does it really cost to operate a marina in a country that is managed in the interests of the people? Let’s say £1 million for the initial 200 pontoons depreciated over 10 years, 24 hour staff cover say 4 staff @ £100k total and add another 100k for maintenance.

I make that £1,500 per year per berth, beginning to sound like French prices? Just think, no HQ, no MD and no VP of Health & Safety policy and no committees dreaming up customer care mission statements.
 
Re: Doing sums

High property prices have two impacts on the costs.

Firstly it provides a very high barrier to competition entering the market - it is very difficult to find land appropriate for building a marina and that land would be very expensive. Either competition can't enter the market, or they have to take on so much debt that they have to charge the high rates to recoup the costs.

Secondly it sets a lower limit on the value of the marina company - the resale value of the land.
 
Re: Myopic capitalism

Jonjo,

I am not seeking to condone the high marina prices in the UK; I simply try and provide some assistance in what has become a useful debate in why marina prices are as they are. Like you I actually prefer the French way of doing many things and indeed admire the nation's ability to deliver excellent social services to the population. However whether it is correct that the general french tax payer should support a specific leisure sector is doubtful. France has a completely contrasting economic and political structure to the Uk (and also has a number of serious structural problems to deal with) as well as having a geneally weaker economic performance. Some say that France will need to see the same working place reforms as the UK did under Thatcher. Is it right that the French government are car manufacturers? I have to say that I'm delighted not to have British Leyland to support any more. Governments are not generally very good at running profitable efficient businesses. Now I'm well off track, apologies, but I do think it relevant in dealing with your assertions regarding government intervention in providing marina facilities!

rob
 
Re: Vicious circle...

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A marina need have virtually no footprint on the land and can be set up with I would guess a minimum capital investment. I don't believe that pontoons are THAT expensive.



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A medium sized marina such as Dun Laoghaire Marina in Dublin is reputed to have cost €7.6 million just 5/6 years ago. Interesting just how much "THAT expensive" can really be... (No boatyard, just a carpark for boats).
 
Re: Myopic capitalism

I believe the French government still has around 15% of the Renault company. It became a private company in the mid-nineties.
The investment the government made in Renault enabled the company to become the 4th car manufacturer (or 5th if you take away Nissan of which Renault owns 45%). I believe the state and the French tax payer have actually made a good profit in the investment.

You are right the attitudes in France and the UK are totally different. The French accept that the state should be the main provider for public services and that these come at a cost. Tax payer money enables long term investment and that resulted in France having leading telecoms, railways and healthcare in the mid nineties.
The generalisation that governments cannot run efficient businesses is not valid everywhere outside the UK!
That these businesses cannot be run for a huge profit is however true. My argument would be why should they? If you do not have shareholders and investment comes from the state, why should you strive for profits?

Like municipal campsites, municipal marinas in France aim to break even, and the loacl community profits from the tourism they attract.
 
waiting lists

Last time I checked every MDL marina on the South Coast had a waiting list. Surely they're just going to keep on charging more and more until it looks like there won't be a string of mugs lining up for a berth?
 
Re: Myopic capitalism

Or we sub-contract the French for our public services, and pass the profits over the Channel to reduce the French costs.

Brian
 
Re: Myopic capitalism

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Now I'm well off track, apologies, but I do think it relevant in dealing with your assertions regarding government intervention in providing marina facilities

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I view it as community intervention, community is not a dirty word in my dictionary.

Trouble is the UK government is held in an intellectual headlock by a cartel of city business and media interests who will benefit from globalism. The French quite rightly take the view that unrestrained global capitalism is bad news for a mature middle sized European state.

There was a fascinating example of French resistance on TV recently. Some lace manufacturers in North France produce the finest lace in the world using looms that date back 100 years, and the Chinese have failed to replicate with modern equivalents. In order to protect the national interest the looms have been declared national historic monuments and cannot be shipped off to the far east.

Can you imagine a Westminster civil servant demonstrating such ingenuity to protect manufacturing jobs in NE England?
 
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