Caffyns – The balance sheet bonus

PUBLISHED: Aug 12 2017 @ 02:01 | Comments (0) |

In previous Newsletters I established that Caffyns (LSE:CFYN) is not a screaming bargain in terms of its cyclically adjusted price earnings ratio, but is on the border of having a CAPE sufficient below the average for UK shares.

What kept my interest is Caffyns remarkable stock of property assets in prime South East of England towns. Even after deducting liabilities there is a healthy surplus over the current market capitalisation, which is only £13.8m (at 501p per share).

Acres and acres

Caffyns operates from 13 locations selling cars from seven different manufacturers. These plots usually have a large showroom housing, say, 10 polished cars and an acre or more of cars outside; they also have repair and service bays and a spare parts outlet. Look at this list of towns where Caffyns holds freehold land:

Tunbridge Wells (SEAT), Lambert Road North Farm Ind Estate

Brighton (Audi), Dyke Road

Brighton (Volkswagen), Victoria Road

Eastbourne (Audi), Edward Road

Eastbourne (Volkswagen), Lottbridge Drove

Eastbourne (Volvo), Lottbridge Drove

Worthing (Audi), Broadwater Road

Worthing (Volkswagen) Nightingale Ave.

Ashford (SKODA), Orbital Park

Ashford (Used car centre), Orbital Park

Ashford (Vauxhall) Orbital Park

Haywards Heath (Volkswagen), Market Place

Property value

The first thing to note is that the property value stated in the balance sheet is not the current market value. The directors organise a revaluation each year. The 2017 Report contained this revaluation statement:

“Our portfolio of freehold premises was revalued as at 31 March 2017 by chartered surveyors CBRE Limited based on an existing use valuation. The excess of the valuation over net book value of our freehold properties was £10.1 million. In accordance with our accounting policies (which reflect those generally utilised throughout the motor retail industry), this surplus has not been incorporated into our accounts.”

With that in mind let’s look at the value put on property.

£000s	April 2017	April 2016	April 2015
Balance sheet value	32,490	34,932	34,600
Revaluation exercise: excess over BS valuation	10,100	9,500	8,490
Additional property held in separate “investment property account”	6,986	1,167	0
Sums to TOTAL	49,576	45,599	43,090

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