Caffyns Share Discussion Threads

[ntv] 09/6/2016 21:55

hi CJohn
unless they can find a dealership who is prepared to exit on a pe ratio of 7 or lower then they going earnings dilutive
most companies produce a profroma balance sheet and give a breakdown of profits/losses but not old fashioned caffyns with its outdated shareholder structure

[cjohn] 03/6/2016 13:55

Hi NTV, the Land Rover deal completed on the 29th April, after the balance sheet date of 31st March. The annual report is merely a snapshot of the balance on that date.


We all agree the board is grossly self-indulgent. I may attend the next company meeting and ask a few questions.

[3800] 28/5/2016 12:57

It cannot be argued that this a steady as it goe's share but the eye wateringly high board recumeration is a great drag on proformance over the longer term. I'm not sure the value will be outed in my lifetime.
3800

[ntv] 27/5/2016 20:13

strange they didn't show the land rover business in the balance as an asset sold but monies not received as it was a known valuation
the cost £136k above the premium paid seemed a heavy price for buying back the some of the prefs.
i love the way the caffyn family dictates the price paid for the prefs to cancel them and its interest rates paid on the remaining ones
i know it upset one major shareholder.
they talk of expansion but with pref share noose round its neck there is little chance of institutional shareholders joining in.
buying another dealer on a lower rating than caffyns (so as not to be earnings diluting) is just a la la mind set.
still yield is good and asset backing is good. the property let to sainsbury as this increases rental income. that along the rent from the land rover dealership is good news and should part cover finance costs next year

[beazer2] 27/5/2016 10:56

Post year end events show they were turned down on planning for the newly acquired sites at Angmering but counsel have advised them to appeal. Presumably they have a better use for the Audi site at Worthing and if the appeal is successful they will be able to unlock that value. I am still of the opinion that at some stage the Caffyn family will want to sell. Yesterday Marshalls made a big acquisition in the south of England. This share is seriously undervalued, with significant asset backing, and at some stage shareholders will be rewarded. In the meantime a dividend of 3.6% covered more than 4 times is better than anything you can get from a deposit account and means that this is a share you can sleep easy with throughout any market fluctuations.

[prop_joe] 27/5/2016 10:43

Hi CJohn, agreed!

[cjohn] 27/5/2016 10:10

Hi Prop Joe, no, I wasn't including the proceeds from the Land Rover sale. My calculation was for the results date.

And of course, the 5.5m goodwill paid shows value here beyond the tangible. This really is a very under-valued share

[prop_joe] 27/5/2016 09:51

CJohn, have you included any allowance for the proceeds from the Land Rover business disposal in your tangible asset value calculation?
They say in the results that they are receiving £5.5m in respect of 'goodwill'. As goodwill is an intangible asset I take this as being the excess over the net assets being disposed of i.e. the profit on disposal as there are hardly any intangibles in the balance sheet. Adding this in to my calculation I get the current share price to be only around 45% of tangible asset value even after this morning's share price uptick (I also included the off balance sheet freehold property surplus). Great results IMV - better than I expected :)

[cjohn] 27/5/2016 09:32

The future plans include the purchase of 3 parcels of freehold land in Angmering.


96p underlying eps. Rock-solid balance sheet. Debt after the receipt of the Land Rover funds will be around 3 million sterling. (Land purchases will push the debt back up.) Trading at around half tangible asset value, if the off-balance sheet freehold property surplus is taken into account..

[jaf111] 27/5/2016 08:05

Results confirm CFYN the most under valued car dealer......but would have liked some concrete news on future plans post Land Rover disposal.....

[cjohn] 25/3/2016 09:05

Hi NTV, you say that for you NET debt is ALL debt. Forgive me, but you simply haven't understood what NET means!

Go through every company on the stockmarket and according to your way of thinking all companies will be heavily indebted, net!


The total liabilites figure you quote is simply a rough measure of the size of operations of a company. It says nothing about the company's creditworthiness or indebtedness. Think about the total liabilites of Shell for example. You will find that they have billions and billions. Shock horror!!

You are right that last year, the Land Rover dealership did particularly well for Caffyn's, but this year it's a less significant % of profit.

Anyway you cut it, this is a good deal and merely confirms that the Company is undervalued on the market compared to what a private buyer will pay. Bear in mind the company is trading at about half NET tangible asset value (if you include the revaluation of the freeholds). And the buyer has paid a significant premium to net tangible asset value. This sugggests very considerable potential upside.

[ed 123] 23/3/2016 19:43

NTV.

Caffyns balance sheet is absolutely solid. It has a net asset value about 1.5 times its market capitalisation and only £286k of intangibles. Also, the property is conservatively valued. Look at the other listed car dealers, you won't find another one with such strong tangible asset backing.

Edit: Ask yourself, if you were a lender, would you feel safer lending to Caffyns (where you know you will get your money back because of the size of the tangible assets) or Lookers/Pendragon/etc. where they carry substantial goodwill amounts on the balance sheet and you will get your money back if they keep up their earnings and are able to roll over their debts when maturity approaches). Remember back to the global credit crunch (post Lehmans)? Lookers and Pendragon needed rights issues (2009 and 2011 respectively), whereas Caffyns did not. FWIW, I do not see a downturn coming soon for the UK motor trade and all three, imo, should continue trading profitably but, of the three, Caffyns has the strongest asset backing. The corollary of this however, is that Lookers and Pendragon, etc, have much better returns on capital than Caffyns. This, though, would be one of the attractions of Caffyns to any of the larger car dealers. They could strip out the central overheads and work the capital in Caffyns harder.

Also, I must disagree with you on price, the amount they are to receive, while still holding onto ownership of the site is good. This is evidenced by taking the rent off the site profit (which leaves about £760k) and comparing this to the underlying operating profit of the whole group (pre-JLS sale), ie £3.7million. On this basis, Caffyns is losing about 20% of its profit for a price of about £9million. If they could sell the other 80% of profit for this rate, then Caffyns would be worth 5 x £9million or £45million or £16 per share.

I'm not saying this will happen, but there is a strong case to be argued for the value in Caffyns.

[ntv] 23/3/2016 16:43

As part of the terms of the Disposal, and with effect from Completion, the Buyer will enter into the Lease with the Company for the Property from where the Land Rover Business currently trades. The Lease will be for a term of up to three years at an initial rent of £490,000 per annum for the first two years and £390,000 for the final year. There will be a tenant-only break clause exercisable at any time after 18 months by the Buyer giving to the Company six months’ notice, such notice not to expire before the date which is 24 months following the commencement of the Lease.

[ntv] 23/3/2016 16:42

TO ME NET DEBT IS ALL DEBT IN WHAT EVER FORM IT MAY TAKE ON THE BALANCE SHEET.
I DID NOT HAVE THE RENTAL INCOME FROM THE LR SITE AS ONLY PART OF THE RNS SHOWED AND I HAD NOT REALISED.
LR WAS 40% OF PROFIT SO PRICE IS POOR AS THE GENERAL WORDING APPEARS GIVE THAT SAME FEELING
In the year ended 31 March 2015, the Land Rover Business accounted for 17.7 per cent. of the Company’s revenue and 40.6 per cent. of the Company's underlying profit before taxation. The underlying profit before taxation excludes non-underlying items that are unusual because of their size, nature or incidence.
INCOME FROM PROPERTY HELPS MAKE THAT UP. HOW LONG WILL NEW TENANT STAY?
REST OF BUSINESS IS TO SMALL TO SURVIVE ON ITS OWN, THAT IS OBVIOUS.
WHOLE COMPANY FOR SALE?

[ed 123] 23/3/2016 13:29

Agree, it's a good deal for Caffyns.

I've looked up yields on car dealserships. I've found them to be in the range of 5 to 6% (data two years old but I don't think there will have been much change from that). So, the value of the site being sold may be in the region of £8.1 to £9.8 million. Add that to the £5.7 and £3.2 million for the business and stock, makes a gross total of £18.7 million (pre-costs and pre-tax).

Once this deal completes there are number of ways that Caffyns can go.

One way would be to sell the JLR site too, the return would approximately clear all their borrowings and their pension deficit. That would save about £620k pa in interest and overpayment to pension fund.

Underlying operating profit last year was about £3.7million. Ebitda of the garage being sold was £1.256million. For 2016/17 operating profit might be £3.7 - £1.256 = £2.4million. Add in the 620k saving, take off the stock plan interest of about £0.5million gives about £2.5million of pre-tax profit, £2.0million post-tax. That would be about 74p per share earnings. At a p/e ratio of 10, the market could value Caffyns shares at 740p.

I don't know the book value of what is being sold but Caffyns are conservative with their accounting. I'd guess that net asset value per share could go up from about 930p to, perhaps 1040p (guessing at a £3million excess over book value).

Another option, having sold the biggest profit unit of the group and taken back about £9million (plus having a site worth £8 to 9million) compared to a market cap of about £16million, they might sell the remainder of the plc. A buyer would like the strong asset backing and the ability to strip out central overheads.

I may to go to the general meeting.

[prop_joe] 23/3/2016 11:48

Hi CJohn,
Fair point. More upside that I hadn't considered!

[cjohn] 23/3/2016 11:25

Hi Prop Joe,

The reduction in interest payments will be several hundred k, so overall profit won't be significantly reduced, if at all.

[prop_joe] 23/3/2016 10:52

I am thinking that management may return some of the cash proceeds to shareholders given the sale massively degears the balance sheet. There is a net reduction in ongoing profits with the trading PBT loss outweighing the rental income so I was wondering about a share buy back which would reduce the impact on EPS. However, this will be difficult unless a big holder wants to sell as the shares are illiquid.

So I am wondering if a special dividend might be on the cards?

[cjohn] 23/3/2016 10:30

Hi NTV, in the RNS about the disposal, we are told that for the first two years, the tenant will pay 490k per annum and in the final year, the tenant will pay 390k.


There is a tenant-only break clause exercisable after two years. So the tenancy is for a mínimum two years.

Assuming your "worst-case scenario" of 10% yield, this gives a property value of about 4.5m. But I suspect the yield is less.

[cjohn] 23/3/2016 10:22

Hi NTV; Forgive me, but I can't see out why you are quoting the total liabilites figure at us, as if this is of some significance on its own.


After all, whilst total liabilities are around 56.5m, current assets are 44m
and Non-current assets are 37.6m, giving a very healthy net asset figure oompared to the market price. What's more, the company has not included the latest freehold revaluation on the balance sheet. So the balance sheet understates asset value.

Do the calculations and you will see that net debt at the half year was 11.5m including the preference shares. After, the Land Rover deal, net debt will be about 3m.

[ed 123] 22/3/2016 11:03

Hi CJohn. Thanks for your reply (post 357). :-)

[ntv] 21/3/2016 16:56

INCOME FROM FREEHOLD SITE NOT STATED SO IMPOSSIBLE TO VALUE
WOULD ASSUME WORST CASE SENARIO OF 10% YIELD BUT TENNANT MIGHT ONLY SHORT TERM IF THE JAG AND LAND ROVERS WILL HAVE TO MERGED ONTO ONE SITE
NOT LOOKED AT A POSSIBLE LAND DEVELOPMENT SITE FOR HOUSING

[ntv] 21/3/2016 16:52

TOTAL LIABILITIES ARE OVER £56M IF YOU LOOK AND THAT INCLUDES STOCK BUT PRESUMABLY EXCLUDES PREMIUM PAID FOR PREFS WHICH WILL ADDED TO THAT

[cjohn] 21/3/2016 11:18

Hi NTV,


At the half year - the latest reporting date - I calculate debt, including the then outstanding 1.237m preference shares - at about 11.5m.


The sale of Land Rover is for 9 9million. There will be some transaction costs for the Land Rover sale, let's be pessimistic and say 0.5m.

So debt, after the sale, will reduce to about 3m.

[cjohn] 21/3/2016 11:12

Hi Ed123, total price for Land Rover business is likely to be about 9 million.

Profit before tax in the half year was 486k. So profit after tax about 400k.

If you want to discount the sum paid for working capital, then the figures are less favourable.

As importantly they have been paid at a premium to asset value.