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
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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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