Marshall Motor Holdings - Resilient despite continued market uncertainty
Marshall Motor Holdings (MMH) remains one of the most progressive automotive retail groups in the UK. It has the management experience and financial strength to continue its strategy to drive organic performance by outperforming UK car markets, augmented by appropriate value-creating acquisitions. Market challenges over the last few years have been numerous and persistent, but MMH has delivered a robust performance during the period, including in H119. The share price has recovered modestly since the H119 announcement, but MMH’s rating does not reflect its robust performance, with the support of a healthy dividend yield.
09 Sep 19
Marshall Motor Holdings - Executive interview
With more than 100 years of trading, Marshall Motor Holdings (MMH) is now the seventh largest car retailer in the UK selling both new and used vehicles to consumers and businesses. It has been one of the leading consolidators in the UK automotive retail sector in the last decade, including the transformational £106.9m acquisition of Ridgeway Group in 2016. Following the successful IPO in 2015, the majority owner (64.5% at 3 April 2019) remains Marshall of Cambridge (Holdings), a family-run private company in the UK. The sale of its leasing operation in late 2017 has left the company essentially ungeared (before lease liabilities introduced by IFRS 16). Today MMH operates 106 dealership businesses representing 23 manufacturer brands across 27 counties in England, with aftersales activities including service centres, spare parts and five standalone bodyshops. In this video Daksh Gupta, the CEO since 2008, discusses MMH’s growth, strategic ambitions and differentiators. The CFO Richard Blumberger, who joined the company in early 2019, outlines the company’s financial strengths as well as its recent trading performance.
23 Aug 19
Continued outperformance vs. the market
Marshall Motors has delivered a strong set of H1 results for 2019E in the context of a challenging trading environment. The group’s H1 results reflect a strong unit sales performance, outperforming the new retail, new fleet and used car markets, together with further growth in aftersales revenues. We update our forecast to reflect the impact of IFRS 16, albeit some of this is absorbed by the strong underlying trading patterns and the performance delivered to date, with our assumptions also at the lower end of the consensus range. We remain happy with the long term investment case, aided by a robust balance sheet and solid track record of execution and outperforming the wider market.
13 Aug 19
Marshall Motor Holdings - Robust performance as challenges persist
In contrast to some of its immediate peers, Marshall Motor Holdings (MMH) continues to deliver robust performances in even more challenging UK car markets. Increased revenues and gross profit, with gross margins maintained at 11.4%, limited the fall in H119 PBT to just £0.8m or 5% compared to H118, allowing for the restatement for adoption of IFRS 16. We maintain our underlying PBT estimates for FY19, which are reduced by the non-cash impact from the implementation to IFRS 16 by around 3.6%. We feel recent price weakness was due to company-specific issues at peers. While MMH may be facing a plateau in profitability as UK car markets await clearer economic signals, we feel the yield is supportive while investors await any improvement in fundamentals for the automotive retail sector overall.
13 Aug 19
Solid outperformance and cash improvements
We note the announcement released this morning by Marshall Motor Holdings (MMH) confirming that the group has outperformed the broader market in both retail and fleet new vehicle sales. The strong H1 performance is encouraging in the context of a challenging market and a record prior year comparative. We are leaving full year trading assumptions unchanged but update our net debt forecasts to reflect the cash outperformance driven by lower capex for 2019E. The shares are trading at a clear EV/EBITDA discount to the sector. MMH has a robust balance sheet with £125m freehold and long leasehold assets as at the time of the 2018 results (160p per share) underpinning the valuation.
11 Jul 19
Marshall Motor Holdings - Still performing robustly with strong cash flow
Marshall Motor Holdings (MMH) has issued a pre-close trading statement indicating that performance was in line with management expectations even though markets remain challenging. It also comes at a time when peers have been suffering from what increasingly appear to be company-specific issues. With new and used-car demand continuing to decline in the face of Brexit-induced confidence issues, MMH again outperformed. However, margin pressures and further potential H2 supply-side constraints are expected to lead to a modest fall in profitability. Our estimates remain unchanged and MMH is trading on a current-year multiple of just 5.9x supported by a healthy dividend yield. Any recovery in markets post the Brexit outcome is not reflected by the multiple contraction, even if much of the downside now appears discounted.
11 Jul 19
Half time report
In this note and following the SMMT June data released yesterday, we look at the key dynamics of the sector during H1 2019 and how this is likely to impact the rest of the calendar year. The dealers have challenges on several different fronts, which could lead to some earnings pressure. However, we do believe valuations have reached a trough point, balance sheets remain strong, and FCF should start to steadily build as the capex cycle for most dealers has come to an end.
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05 Jul 19
Where’s the Value?
Warren Buffett once said that as an investor, it is wise to be ‘fearful when others are greedy and greedy when others are fearful’. Fear is not in short supply right now.
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02 Jul 19
A strong platform
Following a record set of results recently released by Marshall Motor Holdings (MMH) we update our forecasts to reflect slightly higher levels of net debt in 2019, driven by higher capex (as a result of retaining Lincoln JLR site) and dividend payments. Trading assumptions are unchanged, and we maintain our below consensus earnings estimates. We have assumed dividend per share is flat through the forecast period from 2018A levels, implying dividend cover of 2.6x based on fully diluted adj. EPS and a yield of 5.2% at the current share price. We also introduce our 2021E forecasts, assuming a £0.6m uplift YoY implying adj. PBT of £22.5m. We believe MMH is in a good position in the marketplace, with a strong balance sheet (leverage low at 0.12x) with further consolidation likely.
15 Mar 19
Marshall Motor Holdings - A record year despite challenges
FY18 was another record year for the continuing businesses, with underlying PBT delivered as we expected, a modest rise on FY17 aided by a strong Q4 performance in used cars. The outlook remains challenging for car retailers, compounded by the uncertainty of any Brexit outcome. Nevertheless, Marshall Motor Holdings’ (MMH) management is displaying confidence in its robust financial position by continuing investment and increasing the dividend. The resultant yield provides significant support for the shares, which like those of its peers continue to be rated for sharp declines in profitability.
14 Mar 19
Record results & dividend +33.4% YOY
Marshall Motor Holdings (MMH) has delivered solid results, which are 1% ahead of our forecasts at the adjusted PBT level. The performance across the board demonstrates outperformance vs. the market, with the change in dividend policy a sign of confidence in its future balance sheet and cash generation. We are maintaining our below consensus estimates at this juncture but believe MMH offers strong value at current levels following this record performance.
13 Mar 19
Marshall Motor Holdings (MMH) has announced two sensible acquisitions comprising 6 dealerships, making it the largest Skoda dealer in the UK with 11 dealerships. We anticipate this should be c5% EPS enhancing over time albeit we recognise a turnaround is required as the businesses collectively are loss making. We believe the valuation remains compelling backed with a very robust balance sheet.
04 Mar 19
Marshall Motor Holdings - Major strengthening of Skoda representation
Marshall Motor Holdings (MMH) has acquired six additional Skoda sites since the start of 2019, underlining its ability to take advantage of opportunities despite a challenging market environment. The lossmaking sites were bought for an aggregate £3.5m and are expected to dilute earnings by just under 2% in 2019 while adding c £60m in annual sales. The businesses should break even in FY20 as MMH more than doubles it exposure to the growing brand in the UK. MMH reports FY18 results on 13 March, when we will further assess the outlook. The current FY19e P/E of 6.4x gives little credit for the performance being achieved in challenging markets and is supported by a healthy dividend yield of over 4%.
04 Mar 19
Trading update & EPS upgrade
We note the unscheduled trading update released this morning by Marshall Motor Holdings (MMH), confirming better than expected trading in the used car market. Together with continued growth in the aftersales business and strong operational initiatives this is driving growth in underlying PBT vs 2017A. As a result, the company now expects adj. PBT in 2018E to be ahead of 2017 (continuing basis). We update our forecasts accordingly to reflect this, which triggers a 14% upgrade to our previously below consensus estimates. We leave forecasts for 2019E and 2020E unchanged reflecting the current uncertainty heading into next year and remain cautious at this juncture as we await further clarity over Brexit. The valuation on our cautious assumptions from 2019E continue to look compelling to us, particularly in the context of its balance sheet, dividend yield and strong anticipated FCF.
14 Nov 18
Marshall Motor Holdings - Strong finish to 2018 expected
Marshall Motor Holdings (MMH) released a trading update, which indicates that the group’s Q4 performance is now expected to be ahead of management and market expectations. Driven by stronger than anticipated used car sales with healthy margins, PBT is now expected to exceed FY17’s record level for the continuing business. We are increasing our FY18e PBT and EPS by 6.4%. Brexit uncertainty remains at the forefront of FY19 prospects, and as some of the currently favourable market dynamics may wane, we leave our FY19 estimates unchanged. The P/E ratio for FY19 is an undemanding 5.8x.
14 Nov 18
Small Cap Feast
Kropz, an emerging plant nutrient producer with an advanced stage phosphate mining project in South Africa, a phosphate project in the Republic of Congo and exploration assets in Ghana, is looking to join AIM. Offer TBC, expected late Nov Titon holdings—international manufacturer and supplier of ventilation systems and window and door hardware. No capital raise. Due 10 Dec. Mkt cap c.£22m. Greenfields Petroleum (TSX-V:GNF) production focused company with operated assets in Azerbaijan seeking AIM dual listing including $60m private placement. Mkt cap $12.6m CAD Finncap—proposed acquisition of M&A adviser Cavendish Corporate Finance and AIM admission. Offer TBA Crossword Cybersecurity PLC* (NEX:CCS)—the technology commercialisation company focusing exclusively on the cyber security sector is investigating the possibility of AIM admission. The Company is proposing to raise up to £2.25 million before the end of December, conditional on Admission.
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14 Nov 18
Marshall Motor Holdings - Reaffirming FY18 outlook
Following the release of sharply lower UK new vehicle registration statistics for September, MMH has released a trading update reaffirming its outlook for FY18. At the interims the company had been cautious about the potential supply side disruption caused by the new Worldwide Harmonised Light Vehicle Test Procedure (WLTP) from 1 September 2018. As it had already factored this in, the expectations and thus numbers remain unchanged. The share price weakness in response to the registrations decline appears unwarranted, with a strong yield providing support.
11 Oct 18
Supply pressure building
Market conditions have continued to deteriorate in 2018 as new car registrations in September were down 20.5% YoY. Weakness in new car sales in the key month of September, ongoing cost pressures and continuing pressure from OEMs who face their own profitability challenges lead us to take a more cautious approach to our below consensus estimates. Balance sheet strength across the sector is generally robust, and in our view, we are likely to see further consolidation activity once recovery is in sight as smaller operators become more distressed. FCF yields are compelling from next year as major investment projects reach completion.
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05 Oct 18
Marshall Motor Holdings - Record first half but a testing H2
Marshall Motor’s (MMH’s) ongoing businesses delivered a record H1 profit before tax despite continued challenges in the UK new and used car markets. While comparatives are easing in the second half, new car supply-side constraints may impact in Q3 as new vehicle testing procedures are introduced. We continue to forecast a fall in H2 profitability, but the strength of the H1 contribution and a strong balance sheet lead us to increase estimates modestly by around 3% for this year and next.
15 Aug 18
Exceeding last year’s record H1
Marshall Motor Holdings (MMH) has exceeded last year’s record H1 performance on a continuing and LFL basis, despite clear industry pressures that have been building throughout the entire period. The key outperformance was in used cars as it delivered a 37bp improvement in margins. Following an upgrade last month, we are maintaining our forecasts, but we continue to believe the shares look significantly undervalued.
14 Aug 18
Trading update and small upgrade
We note the announcement released this morning by Marshall Motor Holdings (MMH) confirming a robust H1 performance with full year expectations currently at the upper end of consensus. The strong H1 performance is encouraging in the context of a challenging market and a record prior year comparative. We are nudging up our forecasts on the back of this statement, which equates to an EPS upgrades of 3-5% during the forecast period. The shares are trading at a clear P/E and EV/EBITDA discount to the sector, and has a robust balance sheet with >£100m freehold and long leasehold assets underpinning the valuation.
03 Jul 18
Marshall Motor Holdings - Progression in still challenging markets
The company has release its pre-close update for H118, which indicates modest progress has been made against last year’s record period: a commendable performance in still-challenging UK car markets. Despite remaining relatively cautious about the H218 market prospects, management expects the full-year outturn to be at the top end of its expectations. The departure of Mark Raban, the chief financial officer during the flotation, to explore new opportunities would appear to be a personal choice. We expect an orderly transition and do not feel there are any reasons for concern at the decision.
03 Jul 18
Small Cap Breakfast
Nucleus Financial—independent wrap platform provider . FYDec17 revs £40.36m and PBT of £5.1m. Offer TBA. Due late July. Kropz PLC-Intention to float by the emerging plant nutrient producer with an advanced stage phosphate mining project in South Africa and exploration assets in West Africa Immotion Group - aims to become the market leader in "out of home" Immersive Entertainment Experiences. Offer TBA. Due 12 July Yellow Cake will use its expertise to generate value through the ownership of physical U3O8 (Uranium) together with a range of activities and opportunities connected with owning physical U3O8. Acquiring supply contract for up to $170m. Due Early July. Strongbow Exploration (TSX:SBW) intends to dual list on AIM. Holds rights to the South Crofty underground tin mine, a former producing tin mine located in the towns of Pool and Camborne, Cornwall . The project is estimated to require the Company to raise £25 million over the next 18 months to progress to a production decision. Offer TBS. Due June.
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03 Jul 18
Value screen refresh and 10 focus stocks
We have completed another refresh of our value style screen, first established as of 12 May 2015. As usual the screen selected the 25 stocks exhibiting the most extreme value characteristics from our universe, and we have chosen 10 stocks to focus on. Since the last refresh, two days before the last general election, which resulted in a hung parliament, the screen has performed a little better than the small-cap index with our focus stocks outperforming by about 500bps. The weighting to UK consumer stocks noted last time detracted from performance, which came as little surprise given our cautious stance, much discussed in our other strategy work this year. One might have expected more consumer exposure in the refreshed screen given this year’s severe underperformance, but it appears forecasts have been similarly downgraded, keeping much of the sector outside our value criteria
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23 Apr 18
Trading in line
Marshall Motor Holdings (MMH) has delivered strong growth in what remains a challenging conditions, showing good outperformance against the market. We are maintaining our forecasts, with our estimates below consensus ahead of what we anticipate to be a difficult Q1 and March trading period. That said, we do believe the shares offer good long-term value at this juncture and point towards a prospective P/E of less than 8x and EV/EBITDA below 4x, which remains at a discount to the sector. In addition, MMH has a strong balance sheet and a prospective dividend yield in excess of 4%.
14 Mar 18
Outperforming its markets
Marshall Motor Holdings (MMH) delivered FY17 results that exceeded our earnings estimates despite the challenges of softer UK car markets that are persisting into FY18. The dilutive disposal of the leasing activity leaves MMH effectively ungeared and in a strong position to pursue its growth strategy. As previously, we forecast a modest organic earnings decline for FY18, which may be augmented by value-adding M&A if suitable opportunities arise.
14 Mar 18
Pre-closed update & 2017 upgrade
Marshall Motor Holdings (MMH) has confirmed it has traded ahead of expectations for FY 2017. The outlook for 2018 and beyond is less certain and is consistent with our industry view. We upgrade our 2017E adj. PBT forecast by 3.6% reflecting the positive guidance in this morning’s statement. We leave our 2018E and 2019E forecasts unchanged. The shares are trading at a clear P/E and EV/EBITDA discount to the sector (32.5% and 28.6% in FY1 respectively albeit this narrows to 9.7% and 5.6% in FY2). The group has a robust balance sheet following the leasing disposal, strong asset backing with >£100m freehold and long leasehold assets and a 2017E 4.0% dividend yield at the current valuation.
11 Jan 18
Delivering continued outperformance
MMH’s pre-close statement indicates that the company continued its strong performance in 2017, despite challenging market conditions that are persisting into 2018. FY17 results are expected to be ahead of previously upgraded pre- and post-tax expectations, and we have lifted our PBT estimate 2% to £28.8m. We have reduced our FY18 PBT estimate by £1m to reflect slight additional margin pressures. The disposal of the Leasing business has strengthened the balance sheet and leaves the company well placed to implement its growth strategy.
11 Jan 18
Small Cap Breakfast
Cradle Arc—holding company of a group of companies focused on the exploration and development of precious and base metals projects in Africa. Offer raising £2.4m with market cap of £20.13m. Expected late Jan 2018 Volex VLX.L—The global provider of cable assemblies is proposing to move from the main market to AIM on 19 January. £75m market cap. FYMar18E rev £241.5m and £7.19m PBT. OnTheMarket—Intention to float on AIM to raise c.£50m which will be used to fund the growth of the OnTheMarket.com portal, already the third biggest UK residential property portal provider. Expected valuation £200m to £250m.
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11 Jan 18
Leasing disposal and portfolio update
We update our forecasts to reflect the disposal of Marshall Leasing (MLL) and the closure of six loss making sites (5 franchised dealerships and 1 used car centre). We downgrade our adj. PBT forecasts for 2018E and 2019E by 15.1% and 15.4% respectively. We see the disposal and the portfolio update as positive for Marshall Motor Holdings (MMH), allowing the group to strengthen the balance sheet by reducing financial leverage and focus the business model at a time of uncertainty across the sector.
13 Dec 17
Resetting numbers following leasing sale
Following the recent announcement of dealer portfolio adjustments, and the completion of the strategic disposal of Marshall Leasing, we adjust our forecasts to reflect these events. As previously commented, the leasing deal eliminates MMH’s gross debt and lifts the NAV to £199.5m or 258p per share. It provides financial flexibility to implement the investment programme, including M&A to help mitigate the initial dilution that is seen in FY18e. The dealership closures eliminate losses and reduce turnover by around £40m. Overall, MMH is well positioned as it enters FY18 where market conditions are expected to remain unhelpful.
27 Nov 17
Polishing the portfolio
MMH has announced a tidying up of its dealership portfolio with six underperforming sites to be closed by the end of the year. While there will be exceptional closure costs of c£6m, the closures will eliminate c£1.3m of operational losses expected in 2017. Although £4m of the cost is cash this will flow out over a number of years against an onerous lease, and the disposal of Marshall Leasing, which has yet to complete, significantly improves the balance sheet. Our underlying numbers remain unchanged and it should be noted that management has not needed to make a trading update despite persistent new car market weakness. The elimination of losses and manufacturer responsiveness to the weaker demand appear to be setting a solid foundation for 2018 numbers.
21 Nov 17
Prospects for 2018/19
Sector sentiment remains low and the new car market continues to decline. We believe the sector valuation has priced in a lot of this risk but update our forecasts to reflect the more difficult trading environment, applying a c.10% -15% downgrade to earnings across the sector. Balance sheet strength across the sector is generally robust, and in our view, we are likely to see further consolidation activity once recovery is in sight as smaller operators become more distressed. Dividend yields are attractive at current valuation and FCF yields are generally attractive despite high levels of capex.
MMH CAMB LOOK PDG VTU
03 Nov 17
Disposal of leasing business
Marshall Motors have announced this morning the disposal of their leasing business, subject to FCA approval, to Northridge Finance for a gross cash consideration of £42.5m (11.5x 2016A PAT). We see this as a positive for MMH, allowing the group to strengthen the balance sheet, focus the business model and reduce exposure to used car residual values at a time of uncertainty. The Disposal is expected to be dilutive to underlying earnings per share in the year ending 31 December 2017 although there will be a significant gain on disposal. We leave our forecasts unchanged for the moment and will update post FCA approval and formal completion.
21 Sep 17
Leasing disposal augments strategic resource
Marshall Motor Holdings (MMH) has announced that it will sell its vehicle leasing activity to Bank of Ireland for £42.5m. The net proceeds equate to 33% of the market cap and will leave the company ungeared. The strengthened balance sheet provides increased financial resource with which to pursue its growth strategy in vehicle retail, both organic and acquired, which should reverse the initial dilution. On completion, the net asset value should rise by nearly 25% to around 254p per share, further underpinning the shares.
21 Sep 17
Strong H1 in a softening market
As indicated in the pre close trading statement, Marshall Motor Holdings (MMH) made good progress in H117, outperforming a weaker UK new car retail market. While uncertainty remains over the direction of end market demand, management’s growth strategy is facilitated by the strengthened balance sheet. Our forecasts are unchanged and assume ongoing market pressure in the second half of the year, with the rating discount to its peers likely to unwind further on any signs of market resilience during H2.
16 Aug 17
LoopUp—The provider of conference calls and online meetings is seeking to join AIM. 2015 revs of £9.2m and EBITDA of £1.02m | Bacanora Lithium— To list on AIM around 28 Sep as holding company for TSX listed Bacanora Minerals at £100m market cap | Aura Energy—ASX listed uranium developer (ASX:AEE) expected to join AIM 6 September | Autins Group plc - The acoustic and thermal insulation specialist now looks to join AIM late August
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16 Aug 17
H1 in line, no change to forecasts
Marshall Motor Holdings (MMH) has delivered a solid set of interim results this morning which are in line with our expectations. As flagged in the company’s trading update in July, a good LFL performance together with a strong performance at Ridgeway has delivered headline adj. PBT up 32.9% YOY. We are maintaining our forecasts following this update (albeit September remains key to full year performance). While market conditions remain uncertain the valuation remains compelling and more than factors in any potential earnings risk. Based on near term multiples (2017E P/E of 5.1x) and in the context of £112.5m of property freehold/long term leases we believe the current market value is underpinned.
15 Aug 17
N+1 Singer - Morning Song 15-08-2017
Ergomed (ERGO LN) Clinical hold on CEL-SCI’s Phase III removed | H&T Group (HAT LN) Positive interim results, benefiting from gold price increase | Marshall Motor Holdings (MMH LN) Deep value as strong performance ongoing & net bank debt reduces | UDG Healthcare (UDG LN) Acquisition-led upgrade momentum building
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15 Aug 17
June SMMT data: private registrations -7.8% YOY and -4.8% YTD
The SMMT (Society of Motor Manufacturers and Traders) has released data this morning confirming new car registrations in June of 243,454 which is -4.8% YOY, implying a H1 of 1,401,811 units which is -1.3% YOY but represents the second highest H1 on record. Private registrations were -7.8%, with fleet also showing a decline at -2.4% YOY representing 57.1% of registrations vs. 55.6% last year. We continue to believe the earnings risk has been accounted for in heavily discounted valuation multiples based on cautious and below consensus forecast assumptions across our coverage universe. We continue to favor stocks with flexible balance sheets at this stage of the cycle, and believe stocks such as Vertu and Cambria remain significantly underpinned by their growing property portfolios and proven operating models.
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05 Jul 17
Pre-close trading statement
Marshall Motor Holdings (MMH) has confirmed it is trading ahead of expectations for the full year following a strong H1 performance, with a particularly strong first quarter driven by both modest LFL revenue growth and to a greater extent outperformance from the Ridgeway acquisition. The outlook further out is less certain with the board highlighting growing uncertainty in the new car market as reasons for a more cautious long term view, which is a view we concur with. That said, we upgrade our EPS forecasts in 2017 and 2018 by 6-7% and believe the current share price looks heavily discounted with the stock on a prospective P/E of sub 5x with the dividend yield approaching 5% and the current market capitalisation underpinned by property assets.
04 Jul 17
Trading ahead of expectations
Marshall Motor Holdings (MMH) released a pre-close interim trading statement indicating that strong trading performance has continued in the current year, despite several potential pitfalls. As a result, we are raising our estimates for the current year and expect continued progress in FY18. The better-than-expected development leaves our fair value estimate unchanged at 214p, progress towards which should become apparent as the delivery of the growth strategy continues despite market concerns.
04 Jul 17
Driving transformational growth
As Marshall Motor (MMH) celebrates the second anniversary of its flotation on AIM, it can reflect positively on the continuation of its strong growth record, which has driven it to rank seventh among UK automotive retailing groups. The strong brand coverage and excellent relationships with major manufacturers should continue to deliver growth opportunities, despite potentially tougher market conditions. Our fair value for MMH currently stands at 214p per share.
11 May 17
N+1 Singer - Marshall Motor Holdings - Meeting with company re-affirms positive investment case
A meeting with the company yesterday re-affirms the strength of the Marshall Motors investment case, particularly after a 20p (11%) fall in the share price during the week to 159p. This has been caused by concerns about PCP/industry credit following adverse press coverage. Whilst some wider industry concerns are understandable, leading franchise dealers have strong systems/compliance from an FCA perspective and credit is typically provided by OEMs who conduct affordability and credit checks on applicants (hence default rates are <1%). In our view, events are more likely to be positive than negative in the short term with industry data pointing to a strong Q1 profit performance and with scope for a scrappage scheme to be announced. Marshall Motors is a quality growth stock which is falling back into deep value territory on just 6x P/E and backed by c188p freehold property.
05 May 17
Record SMMT March new car registration data
The SMMT (Society of Motor Manufacturers and Traders) has released data this morning confirming a record new car market in March of 562,337 registrations and +8.4% YOY, implying a record Q1 of 820,016 +6.2% YOY. Private registrations +4.4%, fleet continues to drive the growth in this market and was +12.6% YOY representing 46.6% of registrations vs. 44.9% last year. We believe the earnings risk has been accounted for in heavily discounted valuation multiples based on cautious forecast assumptions (we assume a 10% drop in new car registrations vs. the SMMT at -5%). We continue to favour stocks with flexible balance sheets at this stage of the cycle, and believe stocks such as Vertu and Cambria remain significantly underpinned by their growing property portfolios and strong operating models.
MMH CAMB VTU PDG INCH LOOK MOTR
05 Apr 17
Final results 4% ahead at PBT level
Marshall Motor Holdings (MMH) has delivered solid results, which are 4% ahead of our forecasts at the adjusted PBT level. This marks a transformational year for the group following the acquisitions of SGS and Ridgeway, which appear to be bedding in well. We are maintaining our FY forecasts for the year ahead, albeit the order book for March appears to be building well. The shares have recovered from their post Brexit slump, but the long term valuation remains attractive to us based on near term multiples based on cautious forecasts and in the context of £106.5m of freehold/long term leases underpinning the current market value of the shares.
15 Mar 17
Executing the growth strategy
Following the acquisition of Ridgeway last May, Marshall Motor Holdings (MMH) is now the seventh largest car dealership group in the UK, having more than doubled turnover in the last 18 months. FY16 results confirmed strong underlying progress, and FY17 looks set to deliver another positive outcome, notwithstanding uncertainty over the strength of the UK market. The company maintains its ambition to become the premier car retailer in the UK, with a balance sheet that supports further expansion through both increased organic investment and M&A. It also supports the progressive dividend payment to shareholders.
15 Mar 17
Marshall Motor Holdings (MMH) has confirmed it is trading comfortably in line with expectations for FY 2016 with the integration of Ridgeway, cost control and net debt levels all going to plan. The outlook for 2017 and beyond is less certain and is consistent with our industry view, albeit we reduced our EPS by 13-16% to account for this in November. While we had concerns over the balance sheet and level of leverage at this point in the cycle, we believe the current share price has heavily discounted this level of risk with the stock on 5x prospective earnings with the current market capitalisation underpinned by property assets.
12 Jan 17
SMMT 2016 data
The SMMT (Society of Motor Manufacturers and Traders) has released data this morning confirming a record new car market of 2.69m registrations and +2.3% YOY. This is the fifth year in a row of growing new car registrations. Headline December registrations were -1.1% with private registrations -5.5% completing a third quarter in succession of negative growth in this segment. Fleet continues to drive the growth in this market and was +4.8% YOY representing 51.3% of registrations vs. 50.0% last year. The key question is what will happen in 2017 post Brexit with uncertainty levels still high. We maintain our cautious stance and downgraded our EPS forecasts by 8-15% across the sector in November accordingly. That said, we believe the earnings risk has been accounted for in trough valuation multiples based on cautious forecast assumptions (we assume a 10% drop in new car registrations vs. the SMMT at -5%). We continue to favor stocks with flexible balance sheets at this stage of the cycle, and believe stocks such as Vertu and Cambria remain significantly underpinned by their growing property portfolios.
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05 Jan 17
Looking into 2017/18
Sector sentiment is at a low point with clear uncertainty around 2017/18 earnings. We are attempting to cut through this, and believe the share price falls more than price in the earnings risk. Following a robust September, we would expect a strong 2016 performance, which has been confirmed by all dealers, but do expect conditions to get more difficult from here. We continue to favour stocks with flexible balance sheets at this stage of the cycle.
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16 Nov 16
We note an unscheduled trading update from Marshall Motors noting the recent share price declines with the shares now below its IPO price. That said, board remains confident in the full year outlook and confirmed it continues to trade in line with expectations to FY 2016. The sector has been hit hard in recent weeks driven by weaker sterling and concerns over the UK consumer in the next 12-18 months with strong growth factored primarily due to the Ridgeway acquisition. The valuation looks low at a 5.5x FY16E P/E multiple falling to 4.6x in FY17E which is below the UK dealer average of 7x While we have concerns over the balance sheet and the level of leverage employed in the business at this point in the cycle, we believe the current share price has heavily discounted this level of risk. The shares are now looking more appealing (along with the rest of the sector) for longer term investors in our view.
18 Oct 16
Directa Plus (DCTA.L) | Clinigen Group (CLIN.L) | Accesso Technology (ACSO.L) | Digital Barriers (DGB.L) | Orogen Gold (ORE.L) | Tethyan Resources (TETH.L) | Botswana Diamonds (BOD.L) | 88 Energy (88E.L) | Hardide (HDD.L) | Marshall Motor Hldgs (MMH.L)
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18 Oct 16
N+1 Singer - Motor Retail - Low gearing, asset backed, strategically placed
After unprecedented amounts of acquisition activity in 2015 and 2016, with c£450m spent by the 4 listed consolidators, we have refreshed our analysis of financial gearing. Contrary to popular belief, gearing in FY17 is forecast at 0.3x ND/EBITDA so well below FY14 (0.7x) and target thresholds (1.0-1.5x). We have also identified that property backing has risen c£175m to c£775m with several retailers now only leasing half their portfolio. Operationally and strategically, the key players appear well positioned to continue outperforming their weaker counterparts, taking market share and forcing more accretive consolidation. This is a virtuous circle which should continue to improve profitability. FCF will also step up in 2 years as the heightened OEM-led capex cycle concludes. Notwithstanding uncertainties around Brexit, trading has remained stable near term. These factors are not priced in, with the subsector trading on a 45% discount to the General Retail sector and on just 1.75x EV/EBITDA on a (purely theoretical) ex property basis.
MMH CAMB VTU LOOK PDG
26 Sep 16
CAMBRIDGE COGNITION HLDGS PLC (COG LN) | CIRCLE HLDGS PLC (CIRC LN) | EARTHPORT PLC (EPO LN) | EASYHOTEL PLC (EZH LN) | ILIKA PLC (IKA LN) | MARSHALL MOTOR HLDGS PLC (MMH LN) | OROSUR MINING INC (OMI CN) | PETARDS GROUP (PEG LN) | ROXI PETROLEUM PLC (RXP LN) | UBISENSE GROUP PLC (UBI LN)
MMH PEG COG IKA OMI CASP EZH IQG CIRC EPO
16 Aug 16
Interims 5% ahead at PBT level
Marshall Motor Holdings announce their H1 results this morning for 2016. The company has reported PBT 5.3% ahead of our expectations at £14.0m. Acquisition integration is progressing according to plan with SG Smith fully integrated and Ridgeway progressing in line with expectations. We leave our headline forecasts unchanged for the full year. The shares look oversold in our view, currently trading at a discount to NAV, but with value opportunities in plentiful supply across the UK motor retail space at present and the above average balance sheet leverage we believe there are better ways to play the sector at present. The shares have responded well to the announcement, with the price rising 6.7% so far today.
15 Aug 16
N+1 Singer - Motor Retail - A compilation of recent snippets
After our interesting conference at the start of July (featuring Vertu, Lookers, Marshall, Cambria, ASE and Tesla), Motor Retail shares have generally bounced from their lows, but remain below previous levels. In this note we summarise the recent sector snippets and reiterate some key positive conclusions from our conference, plus provide a link to the video of the event. Brexit, economic uncertainties and SMMT stats are weighing on the sector in sentiment terms, but it is noticeable how the quoted companies continue to actively pursue their growth and consolidation strategies and give reassuring updates. Interims next week from Lookers and Marshall Motors should provide further insight.
MMH CAMB BCA VTU PDG LOOK
11 Aug 16
H1 results due 16 August
Ahead of H1 results on 16 August, we note that the shares have fallen by 28% since our note on 8 June. We anticipate a robust set of H1 results on an underlying basis with little assumed impact from Ridgeway due to timing. While the shares are at a discount to the sector on distressed multiples and looks undervalued on a long term basis, we continue to believe that execution risk and balance sheet leverage remains above average and believe there are better opportunities elsewhere in the sector.
10 Aug 16
The sector has come under severe pressure following the Brexit vote with investors clearly pricing in distressed economic scenarios with share prices falling between 15% and 51% across the sector. We believe the dealer groups are better businesses this time around, albeit the uncertainty in the economy is likely to adversely impact both new and used car sales. We would favour those stocks that have been oversold with flexible balance sheets. We see significant long-term upside in Cambria and Vertu as fitting these criteria. We are also becoming more positive on Inchcape as its overseas exposure against a weak Sterling backdrop should give it some protection, backed by a strong balance sheet. We believe that Lookers and Pendragon have also been oversold, but remain nervous on Marshall Motor Holdings following its recent decision to gear up by purchasing Ridgeway.
MMH CAMB INCH LOOK PDG VTU
07 Jul 16
We believe Ridgeway to be a quality business that Marshall Motor Holdings (MMH) has acquired at an attractive price. The deal has been financed with existing debt facilities. We had underestimated the flexibility of the balance sheet, but note that the transaction has increased the leverage of the company, increasing the adjusted net debt/EBITDA to 1.6x (adj. net cash pretransaction) which is ahead of its peers. The latest data from the SMMT show a second consecutive monthly decline in private registrations, suggesting that consumer confidence is starting to cool. It is currently unclear whether this is related to uncertainty around Brexit.
08 Jun 16
Hybridan - Small Cap Wrap
ALSP* Board Changes, COMS Contract Win, CNS Contract Win, CCS University Partnership, DEMG announces results of ODM trial, ESP acquisition in Leicester, EZH Interim Results, EVG results, FEVR Trading Update, FDEV Update, INS acquisition, MMH Acquisition, MMX Launch, MXCP Placing, OPTI* Patent Filling, PINN Acquisition, PLI* Bought Deal, SAR* Clinical Trial, STOB Deal Completion, TERN Acquisition, TMT* Investments
MMH ALSP CNS DEMG EZH ESP EVG FEVR FDEV IVO INS MMX MXCP OPTI CLCO PLI SAR STOB TERN TMT SMRT
01 Jun 16
Ridgeway acquisition transform scale and forecasts
Marshall has acquired Ridgeway today in an audacious move that transforms it into the 7th largest franchise motor dealer group (from 10th). The £122m deal (including debt) is being funded from existing resources highlighting how flexible/conservative its B/S was. This equates to a historic multiple of 6x EV/EBITDA. However, with scope to improve operational effectiveness and realise cost synergies, the forward multiple should be considerably lower. By 2018 enlarged EBITDA will be roughly double that of FY15, and we estimate EPS enhancement will be of the order 20-25% in FY’16 (part year effect), rising to 50-60% in FY17 and 60-70% in FY18. Fair value is therefore >300p (CP 152p).
26 May 16
Ergomed (ERGO LN) Deal adds risk; potential upside remains | Ground Rents Income Fund (GRIO LN) NAV uplift of 4% to 118.9p, revenue increase of 15% | Imagination Technologies Group (IMG LN) Messy trading update but cash ahead and restructuring on track | Marshall Motor Holdings (MMH LN) Ridgeway acquisition transform scale and forecasts | Oxford BioMedica (OXB LN) Forecasts updated, remain at Sell
MMH ERGO GRIO IMG OXB
26 May 16
Taking the temperature
We believe that the UK motor sector has had a strong Q1 2016, which should position most companies well for H1. Consumers are still responding well to attractive financing deals, and we anticipate a strong H1 performance from dealers as a result. Valuations amongst the dealer groups remain undemanding in our view, and we see scope for further consolidation during the coming year.
MMH INCH AUTO BCA LOOK PDG VTU CAMB AN KMX CPRT KAR GPI LAD PAG SAH
08 Apr 16
A positive debut
Marshall Motor (MMH) has emerged from its first year as a quoted company with its strong trading record sustained, its growth strategy established and a strong financial position to support management ambitions. We believe that the share price should respond over the medium term, as the market begins to recognise the potential.
18 Mar 16
Full year results
Marshall Motors has announced a strong set of full year results this morning to the year December 2015. The group has delivered a good trading performance during the year, with full year contributions from acquisitions and good organic growth in existing assets delivering growth marginally ahead of our expectations at the PBT level. This morning’s results show good progress since IPO, with the share opening up 3% the market has taken these figures well which appears justified in our view.
17 Mar 16
Quality franchise mix, B/S and growth outlook for just 9x
Headline PBT growth of 21.4% includes PLC costs and additional management resource to drive growth. On an underlying basis growth was over 30%, with no contribution from SG Smith which it acquired in Nov. Clear progress was made in all divisions, on both unit sales and margins/GPPU. Growth in its Leasing division was also strong which, at 30% of group PBT, is a differentiating growth characteristic vs. its peers. The group has a very conservative balance sheet and approaching c£150m of available resource to deliver further accretive acquisitions. In our opinion, forecast risk is to the upside. Yet, despite these characteristics, the stock trades on a c20% discount vs the peer average. This looks completely unsustainable and the shares ought to appreciate if understanding/awareness of the business increases.
17 Mar 16
Cello Group (CLL LN) Prelims | Centaur Media (CAU LN) Prelims | Imagination Technologies Group (IMG LN) Significant further cost reductions | Marshall Motor Holdings (MMH LN) Quality franchise mix, B/S and growth outlook for just 9x | Safestyle UK (SFE LN) Capital returns and factory expansion for growth | Vernalis (VER LN) Interim results impacted by a mild US flu season
MMH CLL CAU IMG SFE VER
17 Mar 16
Value in Motor Retail, encouraging stats in car markets
Updates/results from Cambria, Lookers, Marshall and Vertu are due in early March. Following recent weakness, sub-sector valuations have fallen too far in our opinion, now on a cal’16 P/E of 9.4x (5.4x EV/EBITDA) reducing to <9x (<5x) cal’17. Given ongoing consolidation opportunities, enhancing acquisitions are likely to reduce those multiples further in key names over the course of 2016. The sector slump in part reflects doubts and concerns about motor retail dynamics including VAG prospects. In this context, investors should take reassurance from the latest registration data from the SMMT, industry insights after a meeting with BCA, and the latest acquisition of VAG branded dealerships.
MMH CAMB LOOK VTU
05 Feb 16
Value screen refresh with new focus stocks
We have re-run our value basket, first established in our inaugural quant/screening research note of 26 May last year. As previously the screen produces a basket of 25 value stocks, and we have selected 10 stocks we know well to focus on. To date the value basket has performed exactly in line with the microcap index and outperformed the smallcap index by about 9pp. Our original 10 focus stocks outperformed the basket by 2.2pp. We will continue to monitor performance of the basket, and refresh it again in 3-4 months’ time.
MMH AUG AVG CGS GOAL HAT BOOT LVD RAV SGI
15 Jan 16
Dialight (DIA LN) Trading update – underlying in line | Entertainment One Ltd (ETO LN) Canadian Pensions joins the board | Small-cap quantitative research Value screen refresh with new focus stocks | T. Clarke (CTO LN) Encouraging FY update, cash ahead of expectations
MMH DIA ETO AUG AVG CGS GOAL HAT BOOT LVD RAV SGI CTO
15 Jan 16
Outlook for 2016
We believe that the UK Motor Sector continues to offer attractive opportunities following a successful 2015 given it’s anticipated above average growth rates, strong cash generation and attractive ROCE generated from largely robust balance sheets. We also expect further consolidation amongst the dealers, as the operating environment continues to favour larger groups in our view.
MMH AUTO BCA CAMB INCH LOOK PDG VTU
01 Jan 16
What we do in life Eckoh's in eternity, Avanti reaches for the sky, Platform change for Hornby, Mariana glitters
AVN Financing, BLU Timeline and Results, ECK Contract Wins, FITB Placing, Subscription and Convertible Loan Note, HRN Admission to AIM, MARL Estimate, MMH Interim Results, MXO Mexico Update, NET Contract Win, PLI Q2 Results and Highlights, SVR Contract Win, TRCS Trading Update, UNG Launch, VENN Trading Update
MMH AVN BLU ECK HRN MXO PLI SVR TRCS UNG ORPH NET MARL BIDS
20 Aug 15
Motor retailers - positive read across from strong industry data
The latest data from the SMMT has positive read across for the motor retail stocks where the average valuation gap vs. the overall retail sector has now widened to almost 35% given the level of re-rating witnessed elsewhere. The recent £/€ rate bodes well for continued momentum. The next motor retailer to update will be Marshall Motors on Thursday (its maiden H1 pre-close) which we expect to read well. However, our preferred stocks in the sub-sector are Lookers (Buy) trading on a cal’15 P/E of 11.8x and Cambria (Corporate) trading on a cal’15 P/E of just 9.7x. In both instances we believe consensus forecasts could be overly conservative.
MMH LOOK CAMB
07 Jul 15
Buy motor retailers for next phase of growth cycle
In our 28th April motor retail sector note we concluded that the leading franchise operators have above average prospects within the retail sector, driven by organic growth opportunities and acquisition led growth potential. We flagged up two key short term risks though (election and falling residual used car values) but with these risks fading we believe the sector’s growth prospects should come back into focus. Ratings are low in both absolute and relative terms and there is a clear argument for a re-rating in the 2nd phase of the cycle as the mix and quality of earnings should improve. We turn positive on the sub-sector and highlight Cambria (intrinsic value rises to 78p) and Lookers (target price raised to 182p) in particular.
MMH CAMB LOOK PDG VTU
08 Jun 15