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Caffyns (LSE:CFYN), the family-controlled car dealer in the South East with a talent for gaining planning permissions and profit from property, reported reasonably robust interim results from its 13 dealerships last week. In the face of an industry slowdown, with an 11.7% fall nationally in new vehicle registrations, Caffyns volume of new car sales fell by only 7.4%.
While the new car volume trend is not as we would like it, the overall result for the Group is not too bad, with company revenue actually rising from £105.2m to £106.5m. What they lost in volume of new car sales they made up for by raising prices, leaving new car revenue the same.
What helped increased revenue for the Group overall was the 4.6% rise in volume of used cars, compared with 1.4% nationally; after allowing for price changes used car turnover was up 2.7%.
Also car service revenues rose by 4.7% and parts sales were up by 1.7%. These sides of the business are buoyed by the larger than normal increase in the number of one to three-year old vehicles.
Unfortunately, the “challenging environment” could not be countered entirely, and half year underlying profit fell from £1m to £0.7m.
A large part of the fall can be blamed on the spring Vehicle Excise Duty changes which caused customers to pulled forward sales to March, thus ending up in last year’s results (year-end 31st March), causing a slump in April.
Taking a wider view: “Looking across a period of the first nine months of the calendar year, turnover and underlying profit before tax increased by 6.2% and 9.8% respectively against the comparative nine month period in 2016”
Did I make a mistake by buying these shares in August at 501p if this industry faces such strong headwinds? After all, they’ve fallen to 400p bid and 450p offer, lowering the market capitalisation from £13.8m to £12.2m (offer price). I’ll answer that by going through the same valuation methods I wrote about in August, adding the new information as I go.
There is one thing for sure: I will not take Mr Market’s pronouncement on the company as the final word – he can be unreasonably pessimistic and short-sighted.
(Previous Newsletters on Caffyns: 10th – 16th August 2017)
Do the directors think things have gone wrong?
There are some positives:
- A strong September performance with year-on-year growth in the number of new cars sold of 7%, despite a 9% weakening in national registrations in that month. This has generated hope that the second half will be better than the first half.
- Manufacturers (especially VW) have reduced sale targets given to dealers for them to be paid bonuses, “a key element of our profitability”.
- The interim dividend was maintained at 7.5p, indicating confidence in the future. The annual dividend of 22.5p gives a dividend yield of 5%.
- Low gearing means that the dividend is re………………………..To read the rest of this article, and more like it, subscribe to my premium newsletter Deep Value Shares – click here http://newsletters.advfn.com/deepvalueshares/subscribe-1
