Caffyns – cyclically adjusted price earnings ratio

PUBLISHED: Aug 11 2017 @ 08:46 | Comments (0) |

Caffyns (LSE:CFYN) published reported earnings per share figures which average 74.3p over the last ten years. With the share at 501p this gives a CAPE of 6.8 – a very low number (see yesterday’s Newsletter for details).

But this analysis is somewhat crude, in that it fails to deduct major one-off income boosts that will not be repeated, and so gives a distorted view. We get a further distortion because in six years out of the last ten Caffyns has made significant profits through the sale of property or a business.

In the first analysis today I strip out the one-off elements and separate the operating income from the property development income.

Current share price: 501p. Market capitalisation: £13.8m.

Earnings disaggregated

£’000s	2017	2016	2015	2014
Reported profit after tax	5,123	2,487	9,255	1,411
Adjustments	Deduct profit (after tax) on Land Rover business sale: 3,839	Deduct profit (after tax) on sale of property: 254	Deduct profit (after tax) on sale of property: 566	None
		Add back the non-underlying cost of redeeming preference shares: 292	Deduct gain on pension scheme (after tax) due to switch from CPI to RPI uplifts: 7089
Profit after tax and adjustments	1,284	2,525	1,600	1,411
Earnings per share for the operating business	46.7p	91.5p	58.0p	51p

£’000s	2013	2012	2011	2010
Reported profit after tax	1,289	1,416	218	1,107
Adjustments	Deduct profit (after tax) on sale of property (after wind down expenses etc.): 663	Deduct profit (after tax) on sale of property(after wind down expenses etc) 706	None	Deduct profit (after tax) on sale of property(after wind down expenses etc): 261

Profit after tax and adjustments	626	710	218	1,368
Earnings per share for the operating business	22.6p	25.6p	7.7p	48.5p

£’000s	2009	2008
Reported profit after tax	-3,969	2,128
Adjustments	Deduct profit after tax on sale of property. After after wind down cost etc. this needs to be an addition of 261	Deduct VAT refund granted by court (adjustment for many years): 2,453

Profit after tax and adjustments	-3,708	-325
Earnings per share for the operating business	-128.8p	-11.3p	Average EPS over ten years 21.1p

With average earnings per share of 21.1p Caffyns shares are on a CAPE of 501p/21.1p = 23.7, which is much higher than the market average. This is not encouraging.

However, I have been very harsh in excluding the profits made from dealing in property or businesses. It seems likely that the directors are fully aware of the potential of their sites (and of new undeveloped sites) for gaining planning permission for schemes such as change of use, e.g. to residential, or sale to another business.

Given the size and regularity of these types of profit in the past, as well as the rich commuter-belt footprint, I can reasonably assume that the “property business” will continue. Which brings us to my third way of calculating Caffyns CAPE.

Earnings including the property and business gains

I’ll first add up all the property and business sale gains:…………………….

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