Dividend yield is 5. Why has Mr Market pushed the share down so much? The business franchises were strong in years past but have been badly damaged to the point where future earnings will be at a much lower level. Managers gone rotten. The rewards realised so far from shifting the firm to having common product lines now accounting for half of its offer , new IT and operational cost savings are more limited than once thought; while the costs of change, in terms of managerial distraction, staff redundancy and compensation, have been all too evident.
The French businesses seems to have been run for short-term target numbers aimed for by pushing up prices, thus damaging the low-price consumer franchise. Rotten finances. There might be danger in the way the business is funded. These, when taken as a whole, are useful to indicate whether financial distress risk has risen in the last year or so. The indicators fall under three headings: 1 Profitability; 2 Leverage, liquidity, and source of funds, and; 3 Operating efficiency Profitability factors If the firm is profitable and produces positive cash flow it has a capacity to generate funds internally.
Positive net income before extraordinary items for the year to end January ? Kingfisher is profitable and has been for each of the last ten years. A score of one is given.
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Positive cash flow from operations before investment in working capital? Improvement in return on assets employed in the business from the previous year? No Piotroski point. Yes, so third Piotroski point. Leverage, liquidity, and source of funds Change in leverage over one year.
This is despite the share buyback programme. Fourth Piotroski point. Has the firm avoided raising fresh equity capital e. Kingfisher has not had to raise money this way. This takes us to six points. Operating efficiency Has the gross profit margin improved compared with the same period the year before? No point scored. Has the ratio of turnover to beginning-of-the-year total assets improved this year compared with last?
A total of six Piotroski points indicates relatively low risk of financial distress.
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The net surplus on the pension schemes is also comforting. What then usually follows is a statement to the effect that the company should be broken up. I question that logic, especially given the much greater degree of integration painfully forged across its markets in the UK, Ireland, France and Poland in the last four years. It will be costly to split it now redundancies, new IT, new senior teams, logistics networks, etc.
Far better to do something much more mundane and long term: concentrate on doing the ordinary extraordinarily well. Average EPS is That is an earnings yield of This gives a cyclically adjusted price earning ratio of just 8. Moreover, the earnings numbers are remarkable stable, ranging between Being a fairly fast stock-turn retailer, inventories are covered by credit obtained from suppliers. Is it reliant on DIY?
Play one off against the other and prices can fall dramatically.
They stock thousands of items to choose from. Thus, Kingfisher has a loyal customer base in tradesmen of all descriptions. It is certainly not for DIY enthusiasts only. So, why has the share fallen? The plan was to have a common set of product lines in France, Ireland, Poland, etc. There was also to be a one IT system across the Group, and some operational cost savings.
At the same time dividends per share rose from 10p to So that is all good. What was not so good was the poor performance in some parts of the empire. In particular, both Castorama and Brico in France have suffered from poor management. Sales flatlined for nine years, not even keeping pace with inflation. Things have been even worse in the, much smaller, Russian, Iberian and German operations, which have recently been closed.
Profits are at record levels in the UK.
Other reasons for being pessimistic about Kingfisher advanced in the press: People are not DIYers anymore , they get someone to do it for them. Is the company profitable? Does the company produce positive cash flow from operations? Has return on assets improved? Given that beginning of year total assets also rose we can say that the return on assets declined. Is cash flow greater than profits? The third point scored. Has the ratio of long-term debt to average total assets during the year diminished?
Yes, so a fourth Piotroski point. Has the current ratio improved? Current assets divided by current liabilities. Has the company raised cash by selling shares recently? No, it has no need to. One Piotroski point scored. Has the gross profit margin improved?
Has the ratio of turnover to total assets at beginning of the year improved? Cost: 1. It holds the freeholds of large plots in towns in Kent and Sussex, therefore it has valuable real estate. The book value of property stated on the balance sheet has been understated for years; each annual report tells us that property experts have been called in to revalue the estate.
The market capitalisation of the company is about the same number. The table below shows the estimated market values of the property held. But, before getting carried away we need to consider whether the company is heavily indebted and has negative net working capital, offsetting the value in freehold property. Caffyns LSE:CFYN is an awkward company for undertaking cyclically adjusted price earning ratio analysis because less than half of its earnings comes from the operating business of flogging cars.
Half comes in irregular and unpredictable lumps of profits from selling off property or businesses. But, included in there are a exceptional items, some of which I judge to be truly one-offs, and others not, and b realised capital gains on property and the selling of businesses. Method 1.
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Method 2. Stripping out the one-off elements and separating the operating income from the property development income. They were most welcoming and forthcoming. So we enjoyed, not just excellent beach weather, but gained insight into the company. This family-controlled company owns and operates 13 large-scale car showrooms in the prosperous towns around its headquarters in Eastbourne. It makes a good money from aftersales service and the sale of parts to its loyal customers. Car selling and aftersales only contributed about half of the profits it has made over the last decade, with the other half coming from selling property or selling businesses e.
Then, as time passes, the town changes and the land becomes worth more in an alternative use.
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Caffyns then gains permission to build an even larger showroom on the outskirts of the town and sells off or offers for rent the old site for a pretty penny. Alternatively, another company wants the business so badly it pays a high price for the outlet and franchise.
With this combination of car selling and property gains Caffyns has proved to be a steady profit generator.