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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 | 57.7p |
The 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 | 18.4p |
Thus, 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
