Last week I sold my shares in the Southeast car showroom company Caffyns (LSE:CFYN) at a significant loss on the £5.01 I paid in August 2017. I have received 52.5p in dividends over the three years but sold the shares for only £2.39 so the loss is 42%.
The two main attractions for holding are fast disappearing under the weight of Covid-19 and Brexit. These were, (a) steady earnings from selling cars (b) potential profits from gaining planning permission on land owned in prosperous Southeast towns As these two factors deteriorate, the risk of financial distress rises because the company has signed up to onerous clauses when taking loans. These allow HSBC to grab car showrooms in the event of covenant breaches – the one I’m particularly concerned about is the necessity to remain profitable, which is a tough thing to ask as the Covid-19 recession really bites. Previous newsletters on Caffyns: 10th – 16th August 2017, 14th – 16th Dec 2017, 27th – 31st July 2018, 5th – 10th August 2019. A look at earnings Year end (in March) Reported profit after tax (after including the “non-underlying” negatives and positives) £‘000 Earnings per share 2020 -252 -9.4p 2019 -566 -21p 2018 1,030 38.2p 2017 5,123 186.3p 2016 2,487 90.1p 2015 9,255 335.5p 2014 1,411 51p 2013 1,289 46.6p 2012 1,416 51p 2011 218 7.7p 2010 1,107 38.6p 2009 -3,969 -137.8p 2008 2,128 73.9p Average earnings per share 57.7pThe cyclically adjusted price earnings ratio is 239p/57.7p = 4.1. But we need to scrutinise the components of the earnings. For example, the 2015 result deserves a special mention: most of that £9.255m profit was a result of pension rules changing (so that future pensions could rise by only the RPI rather than the CPI) – it is a true one-off. The 2019 earnings number was greatly affected by impairment charges on two properties (£945,000). Also there was a negative £572,000 exceptional charge mostly caused by a one-off expense for equalising pensions (a countrywide imposition on companies). If I correct these distortions, remove true exceptional items and take away the profits made on property I arrive at earnings coming solely from the operating business (including rent collected on properties). Method 2. Stripping out the one-off elements and separating the operating income from the property development income. Year end (in March) Profit from selling cars and rent, £000s Earnings per share from selling cars and rent 2020 -252 -9.4p 2019 952 35.3p 2018 1,030 38.2p 2017 1,284 46.7p 2016 2,525 91.5p 2015 1,600 58p 2014 1,411 51p 2013 626 22.6p 2012 710 25.6p 2011 218 7.7p 2010 846 30p 2009 -4,230 -146.9p 2008 -325 -11.3p Average earnings per share over 13 years 18.4pThus, the average earnings per share is 18.4p from the “operating” business. This puts Caffyns’ shares on a CAPE of 239p/18.4p = 13. Even these numbers have been boosted by what s………………To read more subscribe to my premium newsletter Deep Value Shares – click here http://newsletters.advfn.com/deepvalueshares/subscribe-1
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Glen ArnoldI'm a full-time investor running my portfolio. I invest other people's money into the same shares I hold under the Managed Portfolio Service at Henry Spain. Each of my client's individual accounts is invested in roughly the same proportions as my "Model Portfolio" for which we charge 1.2% + VAT per year. If you would like to join us contact Jackie.Tran@henryspain.co.uk investing is about making the right decisions, not many decisions.
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