Caffyn’s (LSE:CFYN) has a good history of profits from selling cars and renting property. It has also managed its property assets well over the years. But now is crunch-time – profits from these activities are likely to disappear for some time. The question for this newsletter is whether Caffyns is in a strong position to cope with the crisis.
To start with I’ll use Piotroski’s nine variables to get an overview of financial distress risk at March 2020.
For 2019: £12.63m/£93.1m = 13.6%.
Yes, so a third Piotroski point.
2020: £45.8m/£44.7m = 1.02
2019: £47.2m/£44.9m = 1.05
There has been a deterioration, and so no point is scored.
2019: GPM was 12.4%
Fifth Piotroski point.
2019: £209.25m/£91.4m = 2.29
There has been a decline, so no Piotroski point scored.
Conclusion on Piotroski
A score of five out of ten is good and does not signal much financial distress risk from the pre-Covid-19 data.
But to consider the financial shock effect on car sales and property prices we need to probe into the downside risk associated with the debt taken on by Caffyns.
A closer look at Caffyn’s debt
Debt facilities have been agreed with HSBC and VW Bank:
£m 2020 2019 2018
Current 8.9 4.9 1.4
Non-current 8.7 12.6 13.1
Total debt 17.6 17.5 14.5
Less cash -1.5 -3.9 -2.2
Net debt 16.1 13.6 12.3The VW overdraft is asset-backed lending with cars being used a security.
But the VW term loan and the HSBC debt, are subject to covenants tested with respect to:
So, if Caffyns fails to make an “underlying profit before interest” in the next few months HSBC may declare default and grab property assets.
But the directors seem optimistic they will make a profit – or are they just putting on brave face? “The Company have modelled these periods [12 months to September 2020 and 12 months to March 2021] and………………To read more subscribe to my premium newsletter Deep Value Shares – click here http://newsletters.advfn.com/deepvalueshares/subscribe-1
Prof. Glen Arnold
I'm a full-time investor running my portfolio from peaceful Leicestershire countryside. I also happen to be UK´s best selling investment book author and a Financial Times Best selling author.
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