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I first bought into Caffyns, the car dealer (LSE:CFYN), in 2017 for my Modified price earnings ratio portfolio. But I sold it last summer at the height of the first Covid-19 wave as part of a defensive strategy in fear of a long and deep recession, which would not be good for either car sales or land values.
Of course, we all know now that, thanks to vaccines and economic stimulus, far from a recession the economy is set to boom. This means that a company with property assets worth four times market capitalisation is worth another look. These acres of market towns in south-east England are currently being used to house thousands of vehicles in 13 showrooms and display sites. But as house prices rise and space for warehousing becomes scarce these sites have valuable alternative uses.
As well as the valuable land (valued at £55m in March) the company’s profits have moved ahead during the Covid-19 crisis as the demand for second-hand cars boomed and servicing provided a steady flow while the firm was in receipt of government money. With recovery we should see an increase in new car sales once supply issues are resolved.
Furthermore my previous concern about onerous debt clauses has lessened considerably because the company reduced its debt significantly in the last year: HSBC could, in theory, take a showroom or two in the event of default, but the chances of this happening are reduced because (a) net debt has fallen from over £16m to £10.3m and (b) profits keep flowing further bolstering the balance sheet and cash flow.
I bought at market capitalisation of 2.695m shares x £4.65 = £12.53m.
Previous newsletters about Caffyns: 10th – 16th Aug 2017, 14th – 16th Dec 2017, 27th – 31st July 2018, 5th – 10th Aug 2019, 23rd – 24th July 2020.
Net current asset value
| £m | March 2021 | March 2020 | ||
| Inventories | 36.6 | 41.5 | ||
| Receivables | 5.1 | 4.3 | ||
| Cash | 5.7 | 1.5 | ||
| CURRENT ASSETS | 47.4 | 47.5 | ||
| Less Liabilities (ignoring lease liabilities, including pension deficit) | -65.9 | -68.0 | ||
| Less one-third inventories | -12.2 | -13.7 | ||
| Less one-fifth receivables | -1.0 | -0.9 | ||
| Very conservative NCAV | -31.7 | -35.1 | ||
| Investment properties | 7.8 | 8.1 | ||
| Freehold property | 34.6 | 35.2 | ||
| Property revaluation surplus | 12.3 | 11.8 | ||
| NCAV + property |
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