Hot Features
Premium
Level up your trading with our powerful tools and real-time insights all in one place.
Caffyns (LSE:CFYN), a medium-sized motor dealer in the South East with 13 dealerships, suffered badly in the Great Recession, but overall has a good profit record compared with its current market capitalisation of £13.75m (share price £5.00).
It also has freehold property worth three times market capitalisation – and regularly makes profits from developing land and selling it.
There is little sign of financial distress. Furthermore, the long-standing and proven managers, dominated as they are by the Caffyn family, have demonstrated skill at navigating an awful downturn and recovery.
They pay themselves a lot, so that is something to look out for. Another negative is the shifting nature of private motor retailing – in the future are we all going to buy from car warehouses or off the internet, or will many of us continue to value the responsiveness and reputation-to-lose of the local car dealer?
What profits to include in earnings per share?
This is a fairly complex company to analyse, mainly because it does two inter-related things:
- Sell new and used cars, service cars and sell parts
- Make profits from freehold property
Bulletin board writers ask: What is this company, a car dealer or a property developer?
I couldn’t just take the headline earnings numbers or the reported “adjusted” earnings. I had to look at the make-up of each year’s profits and decide which elements to include and which are irrelevant for estimating earnings per share over the last decade, to get some sort of initial point of reference when thinking about future earnings.
Despite digging around the notes to the accounts, and much head scratching, the best I can do is to simplify to the presentation of three alternative estimates of the cyclically adjusted earnings per share.
Once you have those three numbers (and the inputs/assumptions/logic used to derive them) you have to make up your own mind as to what is a reasonable range for the 10-year average earnings per share. Alternative views and methods are welcome – please add a comment.
First attempt at average earnings – the reported “basic” earnings
This includes all operating profits as well as the property profits. The company regularly classifies items such as redundancy payments as “non-underlying”. I’m not having that in any of my earnings calculations: all non-underlying are included – so this a warts an’ all approach.
| Year end
(in March) |
Reported profit after tax (after including the “non-underlying” negatives and positives) £‘000
|
Number of shares (millions) |
Earnings |
| 2017 |
5,123 |
2.75 |
186.3p |
| 2016 |
2,487 |
2.76 |
90.1p |
| 2015 |
9,255 |
2.76 |
335.5p |
| 2014 |
1,411 |
2.77 |
51p |
| 2013 |
1,289 |
2.77 |
46.6p |
| 2012 |
1,416 |
2.77 |
51p |
| 2011 |
218 |
2.79 |
7.7p |
| 2010 |
1,107 |
2.82 |
38.6p |
| 2009 |
-3,969 |
2.88 |
-137.8p |
| 2008 |
2,128 |
2.88 |
73.9p |
| Average earnings per share |
74.3p |
The cyclically adjusted price earnings ratio from this approach is 500p/74.3p = 6.8 – less than half that for the typical UK share of around 15.
An issue
The main problem I have with these earnings numbers entres around 2015. Most of that £9.255m profit (£8.861m) was in fact a result of pension rules changing (so that future pension could……………………………………….
………………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
