Small Cap Value Report (14 Feb 2014) - CFYN, VP., KADA

14th Feb '14 by Paul Scott

13 comments 16452 reads

Good morning! Last call for any donations to my spring charity fundraising - I'm abstaining from alcohol for three months (not had a drop since NYE!), and am also running the Brighton Half Marathon this Sunday. It's going to be a disaster, as the weather has been so awful that I've only managed to get out for 4 training runs. Having a stinking cold for the last fortnight hasn't helped either. So realistically, I'm just aiming to beat last year's time of 2:23, which is quite slow, and probably won't get anywhere near the 2:09 I managed in the autumn London Parks half marathon.

Anyway, all donations to my chosen charities (75% going to MacMillan cancer care, and 25% to the run organisers, local charity Sussex Beacon) are very much appreciated. I'm still a fair distance away from target, so anything you can spare would be brilliant. Here is my fundraising page. Thanks to everyone who has kindly made a donation so far, I'm very grateful for your support.

Caffyns (LON:CFYN)

This is a small chain of car dealershps, with a market cap of around £15m at 527p per share. The company has issued an IMS this morning covering the period from 1 Oct 2013 to 12 Feb 2014. It sounds very good, with new car unit sales up 9.8% against the equivalent period last year. They point out this is on top of 20.6% growth achieved last year, confirming that the new car market is in rude health - as has been reported by other market participants for a while now.

Used car sales growth was even stronger, with 21% growth, although aftersales (servicing, etc), was only up 2.6%. The margins on new cars are wafer thin, so it can be the aftersales that is the most lucrative part of this sector. No indication is given of profitability against forecast, which is a rather glaring omission from a trading statement. This might be because, as they point out, the full year result is heavily dependent on the "crucial month" of March.

The Stockopedia graphics show a lot of green, although one needs to be careful about net debt, as companies in this sector tend to heavily rely on bank debt, and that can make them appear cheap on…

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Jardine

14th Feb '14

Good morning Paul,

Re IPO's would it be possible for Stockopedia to have a section that signals forthcoming new floats?

Also, if Actual Experience gained a listing yesterday is there a reason why it does not show up on Stockopedia today?

Hope the cold gets better soon, I find heavy doses of vitamin C (the effervescent kind) help a speedy recovery.

Andrew

Ramridge

Hi Paul
Re. ACT. We really are in crazy territory. The company revenues were £444k and a loss of around £700k in 14 months to 2013. A market cap of around £75m??? I had a good look at their admission document and not convinced that they have a great proposition. Certainly not an economic moat.
Regards, Ram

Beginner

Morning Paul
Given what happened with ACT, and your comments above, maybe Vince Cable isn't as big a numpty as people have implied?
(Take zinc tablets with vitamin C).

(Do I have to declare the interests that I once voted Liberal, and I have a cold too?)

Mark Simpson

Another bull market indicator imo is what happens when companies announce takeovers. Normally the price of the acquiring company drops slightly due to the risk of overpaying or the execution risk of integrating the acquired company - not every acquisition is in the best interests of shareholders although almost all are in the best interests of the company management. At the moment an acquisition usually ends up with the acquirers share price rising strongly e.g. Alternative Networks (LON:AN.) or Kentz (LON:KENZ). The statement that an acquisition is 'earnings enhancing' is meaningless when cash in the bank earns 1% - an acquisition for cash at 99 P/E would be earnings enhancing! A sign that the bull market is coming to an end imo will be when acquisitions are viewed more skeptically again.

muckshifter

Morning Paul,
I bought some Caffyn last year. The pension deficit looked manageable, but if you do look into them any further I would be interested in your take on that. But the thing that I was just a bit discomforted by, was the controlling interest held by the family, which can be thought of as - good, they share our interest in the progress of the company, or bad - they can effectively do what they want. They are afaics an old family company, so I assumed it's the "good", but would be interested in your opinion. In terms of the lack of profit forecast, I'm not aware of any that have been given, so it might be that saying they would beat or equal forecast was not an available option.
Regards, and good luck on Sunday!

Jon1958

Paul
Thanks for the report which is essential reading.

Good luck with the 1/2 marathon. Particularly if you are struggling with fitness can I suggest you take regular walking breaks from early on. A regime of 10 min running then 1 or 1:30 walking will lower your heart rate and increase your fat metabolism thereby keeping you running for much longer than if you run from the outset until you run out of puff.

Jon

rbf

The point about CFYN is their huge discount to the rest of the sector 9 car dealwers)...generally these are trading on PE ratios of 12-15 whereas CFYN is likely to be around 6-8 based on earnings of 75 to 100p. On the other hand the shares are not very liquid!

DJLJ23

VP (LON:VP.)
Hi Paul, I think, given VP portfolio of divisions and the current weather, they could do well. In particular Torrent trackside should benefit from the 5year National rail programme starting in April 14 and the dameaged caused by the weather. TPA temporary roads and bridges, definatly will be needed given that the ground will remain wet for months. Hire station will know doubt benefit from people trying to dry out and repair buildings.

nevilleaustin

Hi Paul,
I know Caffyns quite well, I bought my Volvo from them and they service it. I have enjoyed better relationships/experiences with other car dealerships in the past. Caffyns are just OK, nothing special.

In fact I used to have drink with one of their branch managers at our local pub as he lived in the next village, he was quite a guy, very individual and eccentric, but very capable. All his staff loved working for him, he motivated them and lifted their spirits daily, he was the life and soul of our local pub.
I am a paraplegic, so I am not supposed to pay VAT on a new car or demonstrator if it is adapted for my disability before I take delivery. I bought a demonstrator and they charged me the VAT, six months latert I found out from the Spinal Injuries Association that I should not pay the VAT on a demonstrator. When I took it up with the sales team, they all told me that I was wrong, so I had a meeting with the eccentric and capable branch manager (who had been briefed by their own accountants that I was not entitled to the VAT back) He said it would take a bit of time but he personally would look into it as he loved a challenge. About six weeks he wrote to me with a cheque for the VAT that I should not of been charged.
Well the story ends with the fact that a year later Caffyns got rid of this very likeable and capable manager, who motivated his staff who loved him.
Good luck on Sunday Paul, if the predicted 80 mph winds are blowing from behind you should do a good time.
Best Wishes Neville

Gilbert Ellacombe

Paul,

As you know Equity Development's "Pre Registered" Investors all had the opportunity to participate in December in the Benchmark (BMK) IPO. The IPO price was 64p: the shares (7 weeks later) are 124p, up 95%. Over 50 of our (private) investors came in and made money. Private investors looking to participate in selected future IPOs should contact Equity Development for more details. email: hannah@equitydevelopment.co.uk for details

Paul Scott

Hi Gilbert,

Thanks for that. Can anyone register interest in your IPOs, or is it restricted to investors with over a certain amount invested, or certain experience? Also do you have access to IPOs from various sources? How many more are planned?

Regards, Paul.

Following on from the comments about bank debt being renegotiated in China, by Kada Technology Holdings (LON:KADA) in their trading statement today, there is an interesting article in today's Telegraph which indicates further problems are escalating in China - it very much sounds as if their enormous credit bubble is about to burst.

That could affect the demand from China for luxury Western goods, and might affect Western banks that have bought a lot of Chinese assets? Anyone know more about this issue?

intuitive6191

This article in the Guardian about Harry Dent and his methods also forecasts a China meltdown. I dont generally have a lot of time for economists. I am sure that they are on the right track but predicting the exact date of a crash is very difficult. Bubbles can go on long after rational analysis says they should have burst.

For those investors with a more down to earth approach, an early indictor of a China slowdown might be their consumption of iron ore. China consume about half the worlds production of iron ore which of course is used for the production of steel. Its a big difficult figure to hide in a slowdown and for me it is an early stage indictator of problems

Small Cap Value Report (14 Feb 2014) - CFYN, VP., KADA

Caffyns (LON:CFYN)

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Paul Scott

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