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Vertu is the fourth largest automotive retailer in the UK, with 188 sales outlets and a track record of cross-cycle growth, principally through businesses it has acquired, funded by equity, debt and most importantly cash generation. Vertu operates across the entire vehicle lifecycle, including new and used vehicle sales, and vehicle servicing, repair and parts. Service and repair is a 40+% gross margin repeating business. With economic headwinds, the transition to electric vehicles, recent overseas investment in the UK market and noise about new business models, the next few years should be interesting. Vertu is well placed to be a winner on several fronts.
Vertu Motors PLC
Vertu has issued an unscheduled update reflecting more difficult conditions in the used car market, with consumer demand weakening as supply has improved. Vertu came into the period having built up stock and subsequently increased stock turn to trade out of the position, hitting margins. Manufacturer vehicle stocking loan costs are higher than expected and the increase in the Living Wage will add to costs in FY25E. We cut FY24E adj. PBT by 17% and FY25E by 12%. While this is disappointing, the balance sheet is strong and the longer-term consolidation thesis is intact. A CY24E PE of 9.2x on revised forecasts is cheap. TP cut from 120p to 100p (11x CY24E PE). Maintain Buy.
An ongoing correction in used car prices has driven lower gross profit per unit for Vertu in recent months and this is expected to continue in the near term. There has been particular weakness in premium vehicle values. Additionally, higher stocking charges on increased new vehicle supply, has led to lower overall profitability. As a result, we have reduced forecast FY24 adjusted PBT by £8.0m (17%) to £39.3m and FY25 by £3.2m (6.2%) to £48.6m. This downgrade to expectations is indicative of market conditions (increased supply concurrent with weaker macroeconomic conditions) but its impact has been lessened by improved sales volumes and good operational performance from Vertu, including robust aftersales trading. As today’s downgrade is expected to be offset by lower net working capital due to active inventory management, our net debt estimates have not changed materially. We believe Vertu is well placed to navigate short-term challenging market conditions and should be able to continue its track record of through-the-cycle earnings growth and returns to shareholders.
Last week Vertu announced a complementary bolt-on acquisition of four sales outlets in the South West of England for an estimated cash consideration of £6.2m, further expanding its presence in the region. The Group is continuing its strategy of adding scale and strengthening brand partnerships. Today we make FY24 balance sheet and cash flow adjustments for the acquisition, reduce FY24 adjusted PBT by 1.5% due to the timing of the deal and acquisition costs, and add a small upgrade to adjusted PBT for FY25 and FY26.
Vertu’s interim results to 31 August show record H1 revenue (£2.4b), strong year-on-year adjusted PBT growth of 11.7%, and interim dividend growth of 21.4%.
Vertu has delivered strong H1 organic growth, supported by the Helston acquisition. H1 adj. PBT increased by 11.7% to £31.5m, in line with our estimate. There are many moving parts to the new and used car markets, but Vertu is navigating them well, balancing market share gains with profitability. Cost control, as always is tight. September trading has been robust and management’s FY guidance is unchanged. A CY24E PE of 6.6x is just too cheap for a business with an excellent growth track record and a strong balance sheet, in prime position to consolidate the market. Value in the sector has been highlighted by the bid premia for Lookers and Pendragon. Maintain 120p and Buy.
Vertu has released a positive trading update ahead of its interim results for the six months to 31 August.
Vertu has released an AGM trading statement confirming a strong first three months of trading in FY24. Ongoing benefits of scale and technology investment continue to generate earnings growth and free cash flows. Aided by the Helston acquisition, trading profit is ahead of prior year levels despite inflationary cost headwinds and the Group is confident in meeting full year market expectations for FY24, so previously upgraded Zeus forecasts are unchanged today. We believe recent public market takeover activity highlights the value in the UK franchised motor retail sector and we reiterate our average valuation estimate of 108p per share, offering 55% upside to investors.
Vertu has delivered a robust Q1 trading performance, with management optimistic on the outlook and no change to our forecasts. The focus is on driving profitable sales growth while keeping a tight control on costs. Meanwhile, there is continuing investment in the business to strengthen Vertu’s competitive advantage. We have collated charts to show why the market supply/demand environment is likely to remain favourable. While there has been no approach for Vertu, the sector is in play. Vertu remains our top pick. A CY24E PE of 6.6x is too cheap. Maintain Buy and 120p TP.
Vertu delivered FY23 adj. PBT 2% ahead of our expectations. Better than expected working capital management led to strong FCF. Dividend growth of 26.5% was ahead of our estimate. FY24E has started strongly. Our thesis holds true, with easing new car supply supporting volume growth, but margins remaining robust. We make no change to our FY24E adj. PBT at this stage (having increased it by 10% at the March update), but expect upgrades as the year progresses. Strategically, Vertu is building a strong competitive advantage through investment in its people and IT infrastructure. The acquisition pipeline remains healthy. CY23E PE of 6.0x with a dividend yield of 4.1% is too cheap. Maintain 120p TP. Buy.
Vertu’s FY23 results beat Zeus estimates at a revenue, underlying PBT and net debt level. Vertu’s ongoing benefits of scale have led to strong earnings growth and FCF generation, meaning the Group has been able to increase DPS by 26.5% YoY to 2.15p (Zeus: 1.8p) and announce a new £3m share buyback. Trading in the first two months of FY24 has been strong, so we edge up underlying PBT estimates by £1.0m to £48.0m, having already upgraded by 8.6% on 2 March. Our updated valuation estimate is 108.0p per share, offering 86% upside to investors.
Vertu has delivered a robust FY23E trading performance, in line with expectations. Net debt is materially better than expected and the Helston acquisition is integrating to plan. We make no change to our FY23E adj. PBT. Management points to improving new car supply which should drive new and used volume growth in 2023. Pricing remains stable overall and there has been no negative impact on demand to date. Reflecting better supply, we raise our FY24E sales forecast, flowing through to a 10% PBT increase. A CY23E PE of 6.4x is too cheap for what is the prime consolidator in the market with an excellent long-term track record. Buy.
Vertu has released a trading update for the five months to 31 January showing Group trading is in line and cash generation is better than expected. The integration of Helston Garages is on track, the Group is taking market share in Aftersales, and year-end net debt (ex. leases, incl. stocking loans) is expected to be £80m-£85m versus previous guidance of £100m-£110m. FY24 underlying PBT is upgraded by 8.6% to £47.0m on an improved supply and cost outlook. We remain comfortable with our average valuation estimate of 105.9p per share, offering 73% upside.
Vertu’s December acquisition of Helston was its largest to date and we see it as an excellent strategic fit. The headline deal EV/EBITDA multiple was 6.8x, but this falls to 4.1x, taking account of acquired freeholds. We expect FY23E net debt (ex leases) of £109m (1.7x EBITDA), falling to £81m by FY25E (1.0x). We increase FY24E EPS by 8% and FY25E by 20% for the deal, keeping underlying assumptions unchanged and cautiously set. We maintain our view that the UK new car market will grow in 2023. A CY23E PE of 6.3x is too cheap for the prime consolidator in the sector. TP raised from 100p to 110p. Buy.
Vertu’s acquisition of Helston Garages Group has completed and we have updated our forecasts, increasing FY24 and FY25 EPS by 18.7% and 24.7%, respectively. This debt-financed transaction takes our forecast FY23 net debt to £105m (incl. stocking loans) or 1.4x EBITDA, but we anticipate this to fall to c. 1.0x EBITDA by FY25. Our updated valuation is now 105.9p per share, offering 102.4% potential upside to investors.
Vertu has announced the acquisition of Helston, subject to completion, which we anticipate will enhance our FY24 and FY25 EPS forecasts by 18.7% and 24.7%, respectively. This transaction is debt-financed via securing new funding and extending long term facilities, with FY23 net debt to pro-forma adjusted EBITDA below 1.4x (incl. stocking loans). We expect net debt/EBITDA will revert back towards 1.0x by the end of FY25. Zeus forecasts and valuation estimates will be updated post-completion – we believe the acquisition of Helston will enhance Group value.
Dish of the day Joiners: Burning Rock Biotech Limited ADS has joined the Main Market (Standard). Leavers: China Petroleum & Chemical Corporation ADS has left the Main Market (Standard). What’s cooking in the IPO kitchen?** Ithaca Energy, a UK independent exploration and production company focused on the UK North Sea, intends to join the Premium Segment of the Main Market. Ithaca Energy is one of the largest independent oil and gas companies in the UKCS, ranking 2nd by resources and 3rd by production. The offer will initially comprise new ordinary shares and the proceeds will be used to repay existing shareholder debt, including a capital note in favour of DKL Energy Limited, the Company’s immediate shareholder. Immediately following Admission, the Company will target a free float of at least 10% of its issued share capital and expects to be eligible for inclusion in the FTSE UK indices. BWP REIT, a newly formed single asset company, announces its intention to raise £35m through the issue of 35m ordinary shares at the issue price of £1 per share, to acquire Bridgewater Place, an office-led mixed use property situated in central Leeds and valued at £63m. BWP REIT will apply for listing on the Wholesale Segment of the International Property Securities Exchange (PSX). 10 November 2022. World Chess plc, a leading chess organisation, intends to join the Main Market. World Chess Plc is the holding company of a group which aims to promote the mass market appeal of chess globally through the commercial offering of chess related activities. Euro 8m to be raised. Expected November 2022. OTAQ plc, (OTAQ.L) the technology company with three divisions: Aquaculture, Geotracking Devices and Offshore intends to delist from the Main Market and join the AQSE Growth Market. OTAQ is developing adjacent technologies to take advantage of a number of growth initiatives that will broaden the Group’s current product portfolio in the global marine aquaculture sector and facilitate entry and growth into the geotracking devices sector. Expected 9 November 2022. Raising a total of £3.6m, £2m raised. Cooks Coffee Company ltd, an international coffee focused café chain which currently owns the Esquires Coffee and Triple Two Coffee Brands, intends to join the AQSE Growth Market. The Company is the 4th largest coffee focused café chain in the UK. Cooks Coffee is currently listed on the New Zealand Stock Exchange. Raising £1.5m through a rights issue in New Zealand and a private placement. Expected 2 November 2022. TECC Capital plc, to be renamed EDX Medical Group, intends to join the AQSE Growth Market. EDX operates a molecular biology and diagnostics laboratory in Cambridge, UK, from which it performs research & development, provides Polymerase Chain Reaction (PCR) testing and genomic sequencing services, undertakes quality assurance and has established expertise in the design, development, validation and sourcing of Lateral Flow Tests on a commercial scale. 14 November 2022. Our daily digest of news from UK listed Small and Mid caps Banquet Buffet*** Arrow Exploration 20p £41.2m (AXL.L) The oil and gas company announces that following the successful testing of the East Pepper well in Canada in September, production began on October 25th. The workover program on RCS-1 and RCE-1 in Colombia is progressing as expected and the Company anticipates reporting on production rates in the next few weeks. Corporate production as of October 27 2022, is approx. 2,530 boe/d net. Total net production from the Rio Cravo field is 760 bopd prior to any contribution from the current workover program. The Pepper Field has been producing approx. 1,270 boe/d, comprising approx. 270 boe/d from West Pepper and approx. 1,000 boe/d from East Pepper. Production at West Pepper is currently curtailed due to third party facility constraints. The production is expected to return to c. 400 boe/d in early Q4 2022. AssetCo 63p £88.6m (ASTO.L) The agile asset and wealth management company announced that it had acquired the entire issued share capital of SVM Asset Management Holdings Limited. The consideration was, after balance sheet adjustments, £11.2m satisfied by the issue of £9m nominal of 1% fixed rate unsecured convertible loan notes 2023 in AssetCo and, as a result of higher net assets of SVM on completion of £4.5m, approx. £2.2m in cash. On completion SVM had cash balances of £5m. SVM is a key component of AssetCo's plans to have a strong asset management hub in Edinburgh. Completion of this acquisition brings assets managed by the AssetCo group in the Scottish capital to nearly £700m. Cloudbreak Discovery 1.375p £8.4m (CDL.L) The royalty company and natural resources project generator, provides a corporate and operational update, including a restructuring plan to shorten execution timelines. Cloudbreak now intends to focus on energy royalty acquisitions in the United States and acquisitions of minority interests in international energy projects. The mineral exploration business will be transferred to, and developed and operated through, a wholly owned Canadian subsidiary of Cloudbreak, to be named Cloudbreak Exploration Inc. Rory Kutluoglu and Cam Bartsch intend to resign from their positions at Cloudbreak to focus full time on Cloudbreak Exploration. Eckoh 43.5p £126.6m (ECK.L) The provider of Customer Engagement Security Solutions, announces a trading update for the six months ended 30 September 2022. Revenue increased 33% to £19.6m and operating profits grew by more than 50%, partially due to favourable currency movement. Net cash was £4.4m, up 57% from £2.8m at year end. Despite the macro-economic uncertainty, the Board expect revenue and profit for FY23 to be significantly higher than FY22, supported by long-term structural growth drivers, increasing Cloud adoption and Eckoh's strengthening product offering. Hydrogen Future Industries 5.25p £1.8m (AQSE: HFI) The developer of proprietary wind and water-based green hydrogen production systems, announces the commencement of prototype testing of the wind element of its hydrogen production system 1 metre diameter prototype in Montana, USA. A key element of the prototype is the proprietary wind turbine, which allows the turbine to be more efficient than current open rotor turbines due to modified aerodynamics, with cowling directing air flow across the rotor blades to create a multiple factor increase in wind speed. The cowling also directs the wind flow out and away from the rear of the turbine, reducing the potential for still air to block the flow through the turbines. N4 Pharma 2.85p £5.2m (N4P.L) The specialist pharmaceutical company developing Nuvec®, a novel delivery system for cancer treatments and vaccines, provides an update on its patent application for Nuvec®, filed in March 2020. N4 Pharma originally filed a Patent Cooperation Treaty (PCT) patent application for Nuvec® to be used to manufacture viral vectors in applications such as ex-vivo gene therapy treatments. It is now making enhancements to the claims of the applications in the territories in which it wishes to gain patent protection. Should the patent be granted in these territories it would mirror the regions granted for the main patent which N4 Pharma has licensed from the University of Queensland. Rosslyn Data Technologies 1.15p £3.9m (RDT.L) The provider of a cloud-based enterprise data analytics platform, announces that it has sold to EnChoice the trade and software assets related to its Integritie business for a maximum consideration of £3.0m, comprising an initial cash consideration of £1.6m and a £1.4m conditional payment based on milestones. The divestment will enable Rosslyn to focus resources on the core Rosslyn product. During the year to 30 April 2022, the Company embarked on a major restructuring by refocussing on a single core product (the Rosslyn spend analytics platform) and a SaaS business model. Tertiary Minerals 0.19p £2.8m (TYM.L) The mineral exploration and development company whose strategic focus is on energy transition metals, provides an update on its summer exploration at the Brunton Pass Copper-Gold Project in Nevada, USA, to further evaluate previously reported copper, mercury and arsenic anomalies. Executive Chairman Patrick Cheetham commented: “The occurrence of substantial widths of clay altered rock with up to 1,000x background values for mercury and antimony at two locations 900m apart and with gold values up to 2.65g/t gold suggests these trenches may be in the upper levels of a high sulphidation epithermal gold deposit. Similar deposits occur in the area including the Paradise Peak deposit, 25km to the southeast, which produced over 1.6m ounces of gold and over 44m ounces of silver before closing in 1993.” Trident Royalties 50p £145.6m (TRR.L) The diversified mining royalty company provides an update on the quarter ended 30 September 2022. Q3 2022 receipts totalled US$2.4m from exposure to gold, copper, and iron ore, an increase of 20% from the prior quarter (when adjusted for one-off events) and by sixfold over Q3 2021. Cash was US$21.5m as of 28 October 2022. Lithium Americas Corp., the operator of the Thacker Pass Lithium Project, announced that the oral hearing for finalisation of the Record of Decision has been scheduled for 5 January 2023. With a date now set, Trident expects a resolution in early-2023, with construction expected to commence thereafter. Vertu Motors 47.58p £166m (VTU.L) The automotive retailer with a network of 164 sales and aftersales outlets across the UK, announces that on 31 October 2022 it has acquired the business and assets of two BMW Motorrad outlets in Yorkshire (the Business). For the year ended 29 September 2021, the Business achieved revenue of £20.5m and an operating profit of £463k. Total consideration is estimated at £4.2m and paid from the Group's existing cash resources. Due to the seasonality of motorcycle sales, the Business is expected to contribute a small loss for the remaining four months of the financial year and to be earnings enhancing in its first full year of ownership.
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Vertu has announced the acquisition of two BMW Motorrad motorcycle outlets in Yorkshire for a total cash consideration of £4.2m. The deal makes Vertu the largest UK partner of BMW Motorrad and increases the number of outlets of the Vertu Motorcycles division to six. The acquired business is not expected to have a significant impact on revenue or profits in the remaining four months of FY23, but should be earnings enhancing in the first full year of ownership. Zeus increase FY24 and FY25 underlying PBT forecasts by 1.3% and 1.1%, respectively.
Dish of the day Joiners: No joiners today. Leavers: No leavers today. What’s cooking in the IPO kitchen?** TECC Capital plc, to be renamed EDX Medical Group, intends to join the AQSE Growth Market. EDX operates a molecular biology and diagnostics laboratory in Cambridge, UK, from which it performs research & development, provides Polymerase Chain Reaction (PCR) testing and genomic sequencing services, undertakes quality assurance and has established expertise in the design, development, validation and sourcing of Lateral Flow Tests on a commercial scale. Due 31 October 2022. Streaks Gaming plc, a UK-based provider of conversational gaming products intends to join the Standard Segment of the Main Market this autumn. The flotation is expected to value Streaks at approximately £10.2m (pre-money) and will make it the first LSE-listed "pure-play" conversational gaming company. Raising between £5-10m. Due around 6 October. The Sustainable Farmland Trust PLC, intends to float on the Premium Segment of the Main Market. The Company invests in a diversified portfolio of farmland and related agriculture-focused assets predominantly located in the US. Raising £200m. Expected 12 October 2022. Welkin China Private Equity, newly established closed-ended investment company dedicated to investing in unquoted Chinese companies, intends to join the Premium Segment of the Main Market. The Company is targeting a raise of up to US$300m. Due 3 November 2022. Georgina Energy, focusing on the exploration, development and monetisation of helium, hydrogen and hydrocarbon interests located in Australia intends to join AIM. Georgina Energy has two principal onshore interests: (1) Mount Winter Prospect in the Amadeus Basin in Northern Australia, which the Company has a right to earn an initial 75% interest; (2) Hussar Prospect, 100% owned by the Company, located in the Officer Basin in Western Australia. Expected late October. The listing of Independent Living REIT plc has been cancelled. Our daily digest of news from UK listed Small and Mid caps Banquet Buffet*** Arbuthnot Banking 800p £119.9m (ARBB.L) The provider of private and retail banking, financial planning, and investment management services, provides a trading update for the three months to 30 September 2022. Bank of England base rate rises contribute to increased revenue and the company’s deposit balances exceed £3bn in the quarter. In September the underlying monthly profit before tax was approaching £4m (excluding the one-off cost of living bonus payment made to all employees that was signalled in the Group's Interim results released on 19 July 2022). Full year results are expected to be ahead of market expectations. Concurrent Technologies 77.5p £56.9m (CNC.L) The specialist in the design and manufacture of high-end embedded computer boards for critical applications, has entered the Systems market through the launch of Helios, its new off-the-shelf, ruggedised vision computer system. This has the potential to significantly expand the company’s addressable market. Concurrent's strategy has been to expand beyond the provision of Plug in Cards (PICs) into systems that utilise its own processor PICs augmented with best-in-class PICs from supplementary manufacturers. Helios is designed to withstand the harshest of environmental conditions and is targeted at a section of the Defence Systems market estimated in 2020 to be worth $105m growing at 17.9% p.a. Genedrive £13.3p £12.3m (GDR.L) The near patient molecular diagnostics company, announces that it has commenced engagement with the U.S. Food and Drug Administration (FDA) to progress the regulatory approval of the Genedrive® MT-RNR1 ID Kit into the USA. The Genedrive® MT-RNR1 assay is the world's first rapid point-of-care test to screen infants in an urgent care setting for a genetic variant that will cause life-long hearing loss when carriers of the variant are given certain antibiotics. Genedrive has submitted via the FDA's Pre-Submission process (Pre-Sub) because there is no exact comparable test in the market already. The Pre-Sub process allows Genedrive to clarify its testing and validation approach, confirm the appropriate regulatory application pathway (510(k) vs De Novo application) and gain additional procedural feedback from the FDA with the aim of making the final submission process more efficient. Kinovo plc 33.5p £20.8m (KINO.L) The specialist property services group that delivers compliance and sustainability solutions, confirms that it has completed the refinancing of its £1.5m term loan with HSBC UK Bank plc, together with the annual renewal of the current £2.5m overdraft facility. As at 30 September 2022, Kinovo's net debt position had reduced to £0.1m (H1 2022: £1.7m) with a cash balance of £1.7m (H1 2022: £2.2m). The term loan is a 12-month facility, at an interest rate of 4% above the compounded Sterling Overnight Index Average (SONIA) and there will be £0.38m quarterly repayments starting in November 2022. The cost of the overdraft is 3.00% above the Bank of England base rate. Netcall 82.5p £127.7m (NET.L) The provider of intelligent automation and customer engagement software, announces its audited results for the year ended 30 June 2022 (FY22). Revenue was £30.5m, up 12% and profit before tax was £2.3m, up 130%. The landmark $19m global contract win announced in June 2022 which resulted in a material upgrade to the FY23 expectations. Cloud services is Netcall’s largest revenue stream and comprising approx. 90% of new product bookings. Trading momentum has continued at the start of the new financial year. PCF Group 1.5p £5.0m (PCF.L) The assets-backed lender provides an update on its near-term strategic intentions and operations following the announcement by Castle Trust Capital plc on 29 September 2022 that it did not intend to make an offer for PCF. PCF Group continues to seek further growth capital and explore other transactional options such as asset sales. Given the uncertainty with the funding activities and the volatile macro-economic conditions, the Board has taken the decision, with effect from today, that it would be prudent to suspend any new lending activities until further notice. Strix Group 120.4p £249.7m (KETL.L) The designer and manufacturer of kettle safety controls and other complementary water temperature management components, announces that it has entered into conditional agreements to acquire the entire issued share capitals of each of Billi Australia, Billi New Zealand and Billi UK Ltd for an aggregate cash consideration of approximately £38m, payable on completion, on a debt and cash free basis. The consideration will be funded through a new term loan and Strix is undertaking an equity placing to maintain an appropriate level of leverage post the acquisition. Sureserve Group 81.5p £135.2m (SUR.L) The social housing energy services group announces that its wholly owned subsidiary CorEnergy Limited, bidding via an Aaron Services Limited Framework, has successfully completed a £5.4m contract with the Defence Infrastructure Organisation to supply the UK Ministry of Defence with solar PV. Acquired by Sureserve in December 2021, CorEnergy operates as both a consultant and principal contractor, designing and installing high quality decarbonisation solutions incorporating renewable energy generation, renewable heating and energy reduction. The City Pub Group 61.5p £65.1m (CPC.L) The owner and operator of 40 premium pubs across Southern England and Wales and a further 2 development sites, today announces that it intends to commence a share buyback programme up to an initial maximum value of £2m from the date of this announcement, with the option to extend by an additional £1m, as referenced in the interim results announcement on 21 September 2022. Due to the limited liquidity in its ordinary shares, the buyback may on any given trading day exceed 25% of the average daily trading volume. Vertu Motors 45.58p £159.0m (VTU.L) The automotive retailer with a network of 160 sales and aftersales outlets across the UK and a sector leading online presence, announces its interim results for the six months ended 31 August 2022 (1H FY23). Revenues grew 3.9% to £2bn. Adjusted profit before tax was £28.2m, down 46% (H1 FY22: £51.8m). Net cash was £17m (28 February 2022: £16.2m). The Board now anticipates that full year profits will be ahead of market expectations, as the government action regarding energy costs and National Insurance rates will benefit the Group in the second half.
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Vertu delivered a strong set of H1 results, the second highest on record, despite a deteriorating economic environment and clear cost headwinds to contend with. The Group is well capitalised and we anticipate continued execution on its well established strategy over the coming months. We are raising our FY23 EPS forecasts by 13% post these results, and continue to believe the shares remain considerably undervalued based on significant financial firepower, asset backing and strong execution of the Group delivered to date.
Vertu has delivered a strong H1, with PBT 14% ahead of expectations. Current trade continues to show similar trends, with supply constraints supporting margins. We think that the trading environment will remain robust, with cost pressures the big variable. We increase FY23E adj. PBT by 9% to reflect the H1 beat and solid start to H2. We leave outer year PBT forecasts unchanged, but see our estimates as very cautiously set. A CY23E PE of just 5.2x is too cheap for a business that is so well-positioned to consolidate the market. Maintain Buy and 100p TP.
Vertu’s trading update for the six months to 31 August 2022 shows a strong performance despite challenging supply constraints. The themes of lower sales volumes and higher gross profit per unit have continued. We make no changes to FY23 forecasts, however, today’s update and news of high new vehicle order bank levels increases the confidence in our FY23 numbers. In our view, Vertu is materially undervalued, trading 30.0% below the last reported tangible net asset value (66.8p) and 53.3% below our average intrinsic value estimate (100.2p).
Vertu has issued a brief trading update which suggests a strong H1, but no change to FY23E forecasts at this stage, given growing macro headwinds. New car gross profit continues to grow, despite volume declines. Used car margins are slowly starting to normalise. Cost pressures are in line with expectations to date, but energy remains a key variable for H2. We maintain our view that supply/demand dynamics are likely to remain favourable even as macro pressures build. Our FY estimates are cautiously set and the shares represent deep value, on a CY23E PE of 6.2x. Maintain 100p TP and Buy.
As we pass the half point of the year, we take a temperature check of the UK Automotive Retail sector, looking at the key themes and how these impact the PLC dealers. The sector showed exceptional resilience and flexibility in the pandemic, followed by very strong trading in 2021. We expect that dealers will once again prove resilient to supply constraints and macro uncertainties.
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Any reference to a partner in relation to Hybridan LLP is to a member of Hybridan LLP or an employee with equivalent standing and qualifications. A list of the members of Hybridan LLP is available for inspection at the registered office, 2 Jardine House, The Harrovian Business Village, Bessborough Road, Harrow, Middlesex HA1 3EX. *A corporate client of Hybridan LLP Dish of the day Joiners: Alteration Earth PLC (ALTE.L), a UK company established as a special purpose acquisition company to seek and acquire businesses in the clean technology and/or clean energy sector, announce that its ordinary shares have been admitted to the Standard Segment of the Official List and to trading on the Main Market of the London Stock Exchange. The Company completed a successful seed and subscription funding round raising gross proceeds of £1,260,000 before expenses. Leavers: No Leavers Today. What’s cooking in the IPO kitchen? Immediate acquisitions (IME.L) is to re-join AIM via a Reverse Takeover of Fiinu Holdings Limited. Once complete the Company is proposing to change its name to Fiinu Group plc. Fiinu intends to be a provider of a consumer banking product, the Plugin Overdraft ®, which is designed to provide customers with an overdraft facility without having to change their current account or request an overdraft from their existing bank. Fiinu's technology arm manages and develops the platform, using open banking, and once the platform is fully operational will also look to develop secondary revenue streams by licensing Fiinu's intellectual property rights. Capital to be raised £8.01m. Target Mkt Cap c.£53m. Due 8 July. LifeSafe Holdings, a fire safety technology business with innovative fire safety products, intends to join AIM. LifeSafe has developed what the Directors believe to be market disrupting, eco-friendly fire safety protection products to both protect (via fire extinguishers) and detect (via carbon monoxide, smoke and heat alarms) fires. At the centre of the Group's product range is the FER1000 extinguishing fluid, which has been developed by LifeSafe to extinguish five different types of fire: electrical, paper, textiles, cooking oil, and petrol and diesel. The Group's best-selling product using this patent pending extinguishing fluid is the StaySafe 5-in-1 fire extinguisher. It was launched on Amazon Prime in the UK in August 2021 and subsequently became Amazon Prime's top selling fire extinguisher in the UK in the same month. In n the year ended 31 December 2021, the Group generated revenues of £670k and a loss post taxation of £1.5m. £3m to be raised. Due early July 2022. Our daily digest of news from UK listed Small and Mid caps Banquet Buffet ADM Energy* 0.7p £1.8m (ADME.L) The natural resources investing company, provided an update on the legal proceedings in respect of its interest in the Barracuda oil field. As previously announced on 13 December 2021, the Company and K.O.N.H. (UK) Ltd (KONH) obtained an interim injunction at the Federal High Court of Nigeria, Lagos restraining Noble Hill-Network Limited, its officers, agents, privies, or person howsoever connected from selling, disposing, divesting, or tampering with the 70% shareholding interest of KONH in NHNL to third-party investors or in any other manner whatsoever. Further to the announcement on 6 May 2022, the Company has been advised that the Court has adjourned this matter until 16 November 2022. The Company and NHNL informed the Court they are in settlement discussions with a view to resolving the dispute. If no agreement can be reached that will satisfy the Company's demands, ADM will await the Court's final determination of the suit. The interim injunction continues to stand in the meantime and a further update will be made in due course. Arc Minerals 3.4p £38.5m (ARCM.L) Further to the announcement of 29 April 2022, the Company has received on 30 June 2022 the first cash payment of US$125k towards the US$1.5m receivable from the disposal of its Casa interests. The next US$125k is due within the next 30 days and the issuance of $1.25m in listed stock remains due by 28 July 2022. The initial cash payments were delayed due to constraints imposed by relevant Canadian exchange regulations. Arc Minerals is a dynamic junior exploration company focused on exploring for base metals (principally copper) in Africa. Eight Capital 0.05p £0.2m (ECP.L) The financial services fintech operating group that aims to source and deliver tech, fintech and other on-trend-sector transactions announced that its wholly owned independent corporate advisory subsidiary, Innovative Finance Srl, has appointed Mr Luciano Maranzana to its board as Managing Director. Mr Maranzana, 59, has enjoyed a highly successful professional career spanning nearly 30 years, primarily in real estate asset management. Good Energy 272.5p £45.8m (GOOD.L) The 100% renewable electricity supplier and innovative energy services provider, today announced the final deferred consideration received in relation to the disposal of its 47.5MW renewable generation asset portfolio as part of an ongoing strategic shift to energy and mobility services. On 20 January 2022 the Company announced the disposal of its 47.5MW generation portfolio to Bluefield Solar Income Fund. Total consideration of up to £24.5m was comprised of initial and deferred payments. The initial consideration of £16.4m, less distributions since the lockbox date of £0.7m, resulted in £15.7m being paid to the Company on completion. The company now confirms that the final deferred consideration payment of £0.5m has been received. As a result, the final total consideration received in respect of the Portfolio was £21.2m. Live Company Group 5.8p £10.6m (LVCG.L) Update by the live events, entertainment and sports events company on the KPOP.Flex post receipt of the final ticket reconciliation. Final ticket sales of 65k over the two day festival with a higher than expected average ticket price. Overall the event is expected as reported in our recent 2021 Report and Accounts to be profitable. Event streaming broke even with plenty of take aways for potential increased revenue generation for next shows. Merchandising upfront payment was EUR350k and total merchandising sales were in line with this payment. There was insufficient time to secure sponsorship but conversations are ongoing for future events. Manolete Partners 300p £131.2m (MANO.L) The UK's leading insolvency litigation financing company, for the second year in succession, is the only firm to be ranked by Chambers in Band 1 for Insolvency Litigation Funding. Chambers and Partners yesterday released their rankings in their Litigation Support Guide for 2022. Manolete was also the only firm ranked in Band 1 in the previous 2021 Guide. Mena Halton, who leads Manolete's in-house legal team is also the only Band 1 ranked lawyer for Insolvency Litigation Funding. Mena recently joined the Manolete Board as Managing Director. Neometals 53p £281.5m (NMT.L) The Emerging battery materials producer Neometals Ltd announced the appointment of highly experienced executive, Merrill Gray (B.Eng., B.Sc., M.B.A., FIEAust, FAusIMM.), as Head of Recycling. Ms Gray's extensive 30-year career has led her to hold roles as a leader and senior executive in ASX-listed public and private companies. Over the past decade, she has been focused on future energy and next generation sustainability solutions. Most recently Ms Gray held the position as Managing Director at Hexagon Energy Materials Limited. Personal Group 270p £84.4m (PGH.L) The workforce benefits and services provider, announced the acquisition of Quintige Consulting Group Limited, a leading employee experience and reward consultancy, for a cash consideration of £0.9m. QCG was founded in 2000 and has become a leading HR consultancy business supporting a wide range of public and private sector organisations. It provides consultancy regarding employee experience, reward and recognition and has a strong pay benchmarking survey practice. Its clients include the British Transport Police, the Confederation of British Industry, Ofcom, The Southbank Centre, Siemens and Yoox Net-a-Porter Group. For the year ended 31 May 2022, QCG generated revenue and EBITDA (both unaudited) of approximately £750k and £200k respectively with the Acquisition expected to be immediately earnings accretive. San Leon Energy, SUSPENDED (SLE.L) Further to the Company's announcement on 3 May 2022, San Leon, the independent oil and gas production, development and exploration company focused on Nigeria, provides the following update in respect of its potential follow-on investment in the Oza oil field in Nigeria. San Leon's announcement of 3 May 2022 noted that the Company had an option until 30 June 2022 to provide a further loan of US$2.5m to Decklar Resources Limited, in order to increase its shareholding in Decklar from 11% to 15% (or otherwise accept the pro rata reduction in its shareholding in Decklar to 11%). San Leon is in discussions with Decklar in respect of potentially extending the Option Period. The Company will release further announcements as and when appropriate. Vertu Motors 56.5p £198.5m (VTU.L) The UK automotive retailer with a network of 160 sales and aftersales outlets, announced the acquisition of Wiper Blades Limited, a leading e-commerce business specialising in the on-line sale of car wiper blades and other associated products through operating websites. This acquisition is in line with the stated strategy of the Group to develop ancillary businesses to add revenue and profit streams that complement the core business and is further adding digital capabilities and reach. Wiper Blades Limited complements the Powerbulbs.com business the Group bought in June 2021. The share capital of Wiper Blades Limited, was acquired for a cash consideration of £3.5m, which includes £1.1m of cash, subject to finalising the completion accounts. Consideration includes a payment in respect of goodwill of £2.4m. For the year ended 31 August 2021, the business achieved revenues of £2.2m and an unaudited profit before tax of £0.5m. The acquisition is expected to be earnings enhancing in the current year.
VTU ADME ARCM LVCG MANO NMT PGH SLE
Vertu has released an AGM Trading update that communicates a continuation of the strong trading announced on 11 May. The trends of constrained supply and high margins continue. We leave forecasts unchanged today, but this positive update for the first third of FY23 helps to underpin our full year forecasts.
Vertu Motors, SMID Market Highlights
FY22 results are 8% ahead of Zeus underlying PBT forecast despite upgrading seven times during the year. While we anticipate tougher market conditions and are mindful of falling consumer confidence, Vertu has started the new financial year well, and we believe their key priorities of cost management, conversion and customer experience will put them in a good position of continued market outperformance. The shares remain significantly undervalued and we maintain our forecast assumptions for now.
Vertu has delivered a very strong FY22 result, with adj. PBT 7% ahead of our estimate. FY23E has started strongly, with the bulk of gross profit growth coming from new cars as the used car market starts to normalise. Trading profit in March/April of £19.1m is flat on LY, which we think provides a firm underpin to our cautiously set (unchanged) FY23E adj. PBT. With its strong management team and balance sheet, Vertu remains well positioned to consolidate the market. CY23E PE of 6.4x is cheap, supported by a 4.1% dividend yield. Maintain 100p TP and Buy.
Vertu continues to benefit from robust new and used car gross margins. We increase our FY22E adj. PBT by 7% to £75.8m. Supply constraints are likely to continue in 2022, but we expect gross margins to start to normalise. Demand is strong, with the new car order book at record levels, but consumer confidence could come under pressure. We continue to expect more normalised profits in FY23E, but still increase adj. PBT by 9%. Vertu remains our top pick amongst the franchised dealers. CY22E PE 6.5x. TP raised from 90p to 100p.
Vertu has released a trading update for the five months to 31 January in which it expects FY22 underlying PBT to be not less than £75m. We upgrade our FY22 forecasts by 6.8% to reflect this. With expansion with Toyota previously flagged, we also upgrade our revenue forecasts for FY23 and expect higher margins to continue due to ongoing supply constraints, offset in part by cost headwinds. FY23E PBT forecasts increase by 17.6% to £35.4m as a result. We continue to believe Vertu remains well positioned to deliver significant shareholder value from here and note the shares are now trading below FY22E net tangible assets of 64p per share.
We note Vertu has confirmed via RNS Reach it has been awarded the Toyota franchise in the West of Scotland, from the incumbent Arnold Clark. This is good news from a portfolio brand perspective as well as its expansion in Scotland through the Macklin Motors brand. We continue to believe the shares are undervalued following share price weakness of late and await a trading update early next month.
Alongside its primary franchised dealerships businesses (Vertu Motors, Bristol Street Motors and Macklin Motors), Vertu operates a number of ancillary businesses. These include car parts and accessories, cosmetic repairs, van retail broking to commercial customers, online lease advertising, and taxi supply. We think there is a great deal of growth potential and hidden value in these businesses – in this note we provide an overview of each business, before discussing our refreshed valuation estimates for Vertu.
Vertu has announced the acquisition of two established, profitable Toyota dealerships in the East Midlands. We view Toyota as a winning brand committed to growth in the UK market over the long term. We have adjusted our net cash forecasts to account for the consideration this year, but will leave our 2023E earnings forecasts unchanged for now and will review this in full detail when the company announces a year end round up in early March. We remain confident that the risk/reward profile for Vertu remains firmly on the positive side, and re-iterate our intrinsic value estimate of 85.9p per share, which does not take any account of this latest transaction.
Vertu has issued an update as a result of stronger than expected trading in October and November. Supply shortages for new and used cars persist, but have not been as acute as expected. Demand remains strong and margins continue to be above normal levels. Management is now guiding to FY22E PBT of no less than £70m (previously £65m). We increase our forecast to reflect this, but make no change to FY23E. A CY23E PE of 8.8x remains cheap. Maintain 90p TP and Buy.
Vertu has released a trading update increasing FY22 underlying PBT guidance to “no less than £70m”, up from prior guidance of “at least £65m”. This was driven by new vehicle supply being better than expected in October and November, sold at enhanced margins, and a continuation of above-normal used car margins. We increase our FY22 forecasts by 7.7% to £70.2m to reflect this. Our profit forecasts for FY23 and FY24 are unchanged, but even at the more normal levels of forecast FY23 profit, we see ratings upside for Vertu. Recent bid activity in the sector highlights the current industry undervaluation and supports our intrinsic value estimate of 85.9p per share, a 25% upside to current levels.
Vertu has delivered an impressive set of record H1 results, which showed strong volume outperformance and pricing discipline across all markets. We are raising our FY22 forecasts by 19% to reflect current management guidance and leave our FY23/24 forecasts unchanged for now. Our near term value per share increases to 86p implying a healthy risk reward profile from here.
Vertu has delivered a record H1 performance, with adj. PBT of £51.8m more than in FY21 and FY20 combined. This is a function of the super-normal used car pricing environment, but we think that Vertu has materially outperformed the market. September was a record profit month and we increase FY22E PBT by 19%. We make no change to FY23E and our numbers look cautiously set. Omnichannel initiatives continue apace and the acquisition pipeline is strong. A CY23E PE of 8.1x is cheap. Maintain 90p TP. Buy.
Vertu has delivered another earnings upgrade driven by strong ongoing used car margins, in what is effectively an early delivery of the H1 pre-close update. Dividend payments will resume, and a share buyback programme has also recommenced. The shares look too cheap to us even on 2023/24 EPS backed with a current forecast yield of 3.6% and trading below net tangible assets per share of 50.2p. We believe this update should be taken well with Vertu very well positioned to capitalise on the inevitable changes in the industry with a well-executed capital allocation strategy to boot.
Vertu has issued another trading update in the space of three weeks, with the continued strength of used car profits driving a 23% upgrade to FY22E adj. PBT. Our estimates for H2 are cautiously set, given uncertainty around new car supply in September. Importantly, Vertu’s September new car order book is ahead of last year. We make no change to outer year forecasts. The company has announced a £3m share buyback, reflecting the strength of the balance sheet and deep value in the shares. CY23E PE 7.0x, 4.1% yield. Maintain 90p TP. Buy.
Vertu has maintained used car stock levels ahead of its previous expectations, allowing it to take advantage of the strong pricing environment. H1 adj. PBT is expected to be not less than £40m, which is more than the previous FY17 peak. New car supply constraints are likely to impact September, leading to caution on H2. Nonetheless, we increase our FY22E adj. PBT by 44.5% to £45m. We expect this to normalise in FY23E, but Vertu’s longer-term growth prospects are excellent and the shares are too cheap on a CY23E PE of 6.4x. TP raised from 80p to 90p. Buy.
Vertu has released an unscheduled trading update, delivering another earnings upgrade to 2022E, this time in excess of 30%. This is driven by the strength of the used car market, although we believe Vertu is outperforming particularly in terms of securing supply. We believe the shares remain significantly undervalued, and that it remains well placed in the sector.
Vertu’s brief AGM update indicates continued strong trading. Management has raised its FY22E adj. PBT guidance by 15% at the mid-point. We increase FY22E PBT by 17.6%, but make no change to FY23E. Supply constraints and strong demand are pushing up used car prices and gross profit per unit. Tighter new car supply could impact trading in H2 and this keeps our forecasts cautiously set. A CY22E PE of 7.7x offers deep value. There is property backing of 61p/share. Maintain 80p TP and Buy.
Vertu delivered an upgrade in its latest AGM update just four months into its financial year. We have increased by 2022E EPS forecasts by 15.5% taking the mid-point of revised management guidance. We are maintaining our 2023-24E forecasts for now. We remain comfortable with our investment thesis.
FY21 adj. PBT was 7% ahead of expectations and 7% ahead of FY20, despite lockdowns. Gross margins were much stronger than expected. Vertu’s market-leading omni-channel strategy has supported sales and led to a very strong start to FY22E (sales +135% in March/April against lockdown comps). We increase FY22E PBT by 49%, allowing for some caution due to new car supply constraints. Vertu remains our top pick in the sector due to the track record, strength of management and balance sheet. Raise TP from 60p to 80p.
Vertu has released an impressive set of FY results, which are ahead of our previously upgraded forecasts. Trading momentum remains strong with pent-up demand still evident, and with healthy cash generation and a strong balance sheet we believe Vertu is well positioned. This note focuses on the scaled business (#9 in Europe) that has been built up from nothing 15 years ago, and we increase our near term intrinsic value from 62.9p to 75.6p per share implying a healthy risk/reward profile from current levels.
We had the opportunity to look at Vertu’s bespoke systems capabilities yesterday, which we see as a powerful part of the investment case and key differentiating factor from its competitors. To our minds this ultimately delivers enhanced scalability, decision making, integration focus and compliance, which are vital ingredients for future performance.
Vertu’s FY21E pre close update confirms that it expects to meet expectations that were upgraded on 4 February. We make no change to our forecasts, with FY21E adj. PBT broadly flat y-o-y, which we see as a very strong result, given lockdowns. Cash management has come in ahead of expectations – again. Vertu will host a teach-in on its market-leading omni-channel capabilities this Thursday. We think Vertu is well-positioned to consolidate the market and drive higher returns. Maintain 60p TP and Buy.
Vertu has released a pre-close update, confirming FY21E performance is in line with current market consensus and Zeus Capital estimates with underlying PBT expected to be c.£23.0m. Vertu’s long-term investment case remains compelling and we reiterate our valuation of 65p per share.
Vertu has issued a brief update to say that trading continues to be ahead of the prior year and market expectations in the 2 months to 31 January. This is a remarkable result, given the lockdown, and reflects Vertu’s omni-channel capabilities and tight cost control. We raise our FY21E adj. PBT by 28.5% to £23.0m, which absorbs £3m of BMW losses, but is still flat on LY. We will get full details on the trading performance in early March. Raise TP from 50p to 60p. Vertu remains our top pick in the sector.
Vertu has released an unscheduled trading update indicating that it is trading ahead of our forecasts. Consequently, we increase our 2021E EPS by 29% due to better than expected activity levels, driven by effective marketing, and tight cost control. We are not extrapolating this upgrade into future years given current uncertainties but believe Vertu remains well positioned as a sector winner
In this note, we deep-dive into the US online motor retail market, which is more advanced than the UK. There are four listed online players of note. Growth and valuations are impressively high, but none makes money. US brick-and-mortar incumbents have evolved and face no existential threats. UK motor retailers are evolving fast as well-funded new entrants such as Cazoo pose a threat. Consolidation is as important a theme as omnichannel. Vertu and Motorpoint remain our top picks.
VTU MOTR PINE
Vertu has made an excellent acquisition, partnering with BMW for the first time. We think the deal has been struck on favourable terms. The assets are currently loss-making, but we back Vertu management to turn the business around. Trading at Vertu, despite the November lockdown, has been remarkably strong with YTD PBT up 15% y-o-y. Uncertainties abound in Q4. We adjust the shape of our numbers for the acquisition, but make no change to our PBT/EPS forecasts at this stage. Maintain 50p TP and Buy.
Vertu has announced an acquisition that gives it a significant BMW and Mini presence in Yorkshire and the North East. We see this as an asset rich transaction with minimal goodwill, albeit it will take time to turn this business around financially. That said, we believe this transaction comes at an exciting time, given the brands strong pipeline of electric vehicles, and this also shows Vertu investing for the long term as a key industry consolidator.
We believe Vertu has announced an impressive set of H1 results, which are better than we anticipated, delivering an adjusted PBT of £4.7m vs. a small profit/break even position expected. A record September has also been executed, which should benefit the full year as should the £10m of annualised cost savings also delivered. With a strong balance sheet and resilient systems platform that is proven, we see Vertu as an ideal consolidator.
A strong Q2 performance means that Q1 lockdown losses have been more than offset and Vertu has delivered an H1 adj. PBT of £4.7m. September trading has been very strong. Guidance remains withdrawn, but we are re-instating forecasts. The uncertain outlook and the unwind of government support mean that we set expectations for FY22E cautiously, despite the resilience seen in FY21E. The balance sheet is strong and Vertu remains well placed to consolidate the market. Maintain 50p TP and Buy.
Podcast - Vertu Motors meets Auto Trader, SMID Styles and Screens, Screen of the Week, Gym Group, RPS Group, SMID Market Highlights
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In this podcast, Sanjay Vidyarthi talks to Vertu Motors CEO, Robert Forrester, and Auto Trader COO, Catherine Faiers about the state of the UK car market. They discuss what is behind the unexpected strength of the new and used car markets post lockdown and why structural shifts in car ownership may outweigh economic pressures in Q4.
Vertu has reported robust trading across the month of July, building on the strong trend seen over June. A July adjusted PBT of £7.4m (including £0.7m of restructuring costs) is ahead of both management expectations and the Group’s pre-Covid business plan, as ongoing pent up demand continues to drive a strong performance across new and used vehicle sales and aftersales services. The strong trading delivered since the majority of dealerships reopened on 1 June, alongside government support means the Group has generated an adjusted PBT of £2.2m YTD. This impressive performance looks set to continue into the crucial plate change month of September, where the Group’s new car retail order books are currently 20% ahead of prior year.
Vertu has reported a strong performance for the month of June, following the reopening of all showrooms in England from 1 June and 12 Scottish showrooms reopening on 29 June. Adjusted PBT of £9.0m for the month is ahead of prior year and above the Group’s pre-Covid business plan of £8.6m whilst net cash of £9.7m at 30 June reflects impressive working capital management.
Vertu has delivered FY20 results broadly in line with our forecasts at the adjusted PBT and EPS level. However, the real focus is how it has fared during lock down. The monthly cash burn in April and May was lower than we estimated, while cash balances were higher than we expected approaching £45m. While there are no doubt difficult trading months ahead, we believe Vertu has sufficient liquidity and support to come through this and fully reap the opportunities that lie ahead in a sector where significant capacity reduction is expected.
Vertu’s FY20 results demonstrate the qualities of the business in terms of a strong management team exercising financial discipline, supported by sector-leading systems. Strategically, Vertu is leading the market in omni-channel retailing as it prepares for a post-lockdown world. The business incurred losses of £20m across April/May, but emerged with significant headroom and liquidity. It’s low LTV on used car stock will support cash generation. With dealerships having just opened on 1 June, guidance remains withdrawn and our estimates are under review. Management is upfront about its desire and ability to consolidate the market and emerge from this crisis stronger. This remains the bedrock of the longer term investment thesis.
A trading update from Vertu explains recent challenges following the closure of its sites during lockdown. The Group has functioned well to serve essential workers during this crisis. Cost management has been well executed as we would expect, and there appears to be enough balance sheet liquidity/support to see the Group through the coming months. We continue to believe Vertu will survive and thrive to emerge as a sector winner.
Vertu has announced the temporary closure of all of its dealerships. Management had started taking pre-emptive action on costs and capex earlier in March and we expect banks and OEMs to provide support over the coming months. The company still plans to issue FY20E (to Feb) results on 6 May and we will review our estimates then. The start point is a strong, asset backed balance sheet and operational excellence. We expect Vertu to weather the storm better than many peers. CY21E PE 3.1x, £209m of freehold/long leasehold NBV. Maintain Buy.
A trading update from Vertu confirms it is on track to hit market consensus for 2020E. The Group continues to outperform in used cars, fleet and aftersales and is showing good discipline in new cars despite the difficult backdrop. We are taking a more cautious approach to our 2021E and 2022E forecasts impacting EPS by 4.2% and 3.5% respectively, albeit believe the Group is well positioned to emerge as a sector winner.
Vertu expects to deliver an in-line FY20E result, despite H2 volume pressure, with a strong margin performance providing offset. We make no change to our underlying FY20E PBT.
We had the opportunity to look at Vertu’s bespoke systems capability, which have been built from scratch and evolved since inception of the Group in 2006. We believe this is a powerful part of the investment case and key differentiating factor from its competitors, as such systems collate powerful data that can ultimately deliver enhanced scalability, decision making, focus and compliance. Overall, we remain happy with the long-term investment case, and continue to believe Vertu will emerge as one of the sector winners given its infrastructure, focus on compliance and strong balance sheet. We remain confident in our medium-term intrinsic value of 77p (see note from 9 Oct 2019 )
We note the announcement this morning from Vertu confirming the acquisition of four Volkswagen Passenger car dealerships in West Yorkshire. We also note an update on a number of portfolio changes as management continue to focus on optimal capital allocation. The group has paid a total consideration of £9m, with minimal goodwill of £1.35m. We are leaving our trading assumptions unchanged at this juncture as we anticipate a comprehensive pre closed trading update during the beginning of March, but due to timing anticipate modest dilution to Feb 2020 EPS, albeit expect this transaction to be EPS enhancing during the first full year of ownership (Feb 2021 and beyond). We do however update our net debt forecast to reflect the cash consideration of £9m. We believe the Group is well positioned long term given its strong balance sheet, rising FCF generation (FCF yield in 2021E of 9.9% rising to 11.4% in 2022E) and strong track record of disciplined growth.
Vertu has acquired four VW dealerships for a total expected cash consideration of £9m. We see the deal as a good strategic fit.
Vertu has delivered H1 (to Aug) adj. PBT 6% ahead of our estimate, with strong growth in aftersales and fleet & commercial. In the key trading month of September, the new and used car markets have been more stable and profitability is ahead of last year.
Vertu has delivered a robust set of H1 results, demonstrating clear outperformance. We are maintaining our underlying trading assumptions but incorporate the impact of IFRS 16 into forecasts. This has a net £0.4m impact to adj. PBT forecasts but is cash and net debt neutral. While the outlook is no doubt uncertain, we believe the Group is well positioned to cope with market uncertainty given its strong balance sheet, rising FCF generation (FCF yield in 2021E of 9.9% rising to 11.4% in 2022E) and strong track record of delivering disciplined growth.
We note the positive trading update released this morning by Vertu, highlighting a continuation of trends noted in the update provided on the 24 July. The group has confirmed that they expect to report results in line with current market expectations for the full year. We leave our forecasts unchanged following this update and continue to believe the long term value remains compelling at this level, with Net Tangible Asset (NTA) of 44.9p per share.
We believe Vertu continues to outperform in what remains a difficult market. The performance in aftersales and used cars continues to be robust, and we believe the Group continues to take market share here while maintaining margin discipline. The new car market remains difficult, albeit there is good evidence of margin discipline also being maintained here. We adjust our forecasts to reflect margin pressure in the used car segment, we now expect adjusted PBT for 2020E of £23.9m (vs. £25.7m previously).
Vertu's trading update for the four months to June shows an overall resilient performance relative to peers. Consistent with industry newsflow, the market toughened through the period, and PBT for the four months is £1.8m below last year.
Vertu has delivered a respectable set of FY2019A results, which are 7.3% ahead of our forecasts at the adjusted PBT level. We tweak our headline forecasts at this juncture, to reflect higher levels of revenue, with growth in gross profits despite margin pressure coming through in new and used and continued cost pressure across the business, albeit we expect these are beginning to stabilise. We also note the significant cash beat in 2019A and our net debt forecasts for 2020E and 2021E are lower as a result, with a cash pile building in 2021E. We believe the asset backing in this Group remains compelling (NAV per share 44.9p) and it remains well positioned to deliver strong levels of shareholder value across a number of different fronts.
Vertu's FY19 adj. PBT of £23.7m is 8% ahead of our estimate and net debt of £0.3m is better than our £9.8m forecast. FY19 was a difficult year, but with a resilient outcome. FY20E is also likely to be tough, given continued Brexit uncertainty, but trading is in line with management's expectations and we make no change to our FY20E PBT.
Vertu's FY19E pre close update confirms an 'in line' trading performance for the year, which we see as hugely reassuring, given pressures in the new car market. Cash generation has been very strong.
Vertu has announced a trading update, which confirms it will be in line with our 2019E forecast expectations. There continues to be good evidence that Vertu is outperforming on volume in new and used cars, albeit pressures on margins continue to persist. The outlook remains unclear ahead of Brexit, albeit the dramatic fall in our net debt forecasts aids further balance sheet strength and firepower.
Vertu has acquired Vans Direct, an online retailer of new vans, for an estimated total consideration of £7.5m cash (£6.9m EV). Despite Brexit uncertainty, management sees this online channel as worth investing in now. Vans Direct sales were £34.6m and EBITDA £1.2m in the FY to 31 Oct 2017.
Vertu has announced the acquisition of Vans Direct, which is an award winning and established on-line light commercial van broker business. It is maintaining its management team. The acquisition accelerates multi-channel retailing across the Group and bring synergies with its existing light commercial vehicle business. We are maintaining our forecasts at this juncture, albeit calculate this transaction should be 3-5% EPS enhancing from 2020E, under fairly cautious assumptions regarding synergies.
Vertu has delivered a robust set of H1 results, which are in line with our forecasts but down -13.4% at the adjusted PBT level, albeit with adjusted EPS -8.0% helped by the share buyback programme. We are maintaining our headline forecasts following our sector note last week. While the outlook is no doubt uncertain with supply pressures likely to persist in the near term, we believe the Group is well positioned to cope with such pressures given its strong balance sheet, rising FCF generation and strong track record of delivering disciplined growth.
We note the trading update released this morning by Vertu, confirming they continue to trade in line with the trends laid out in the update released at the time of the AGM (25th July 2018) and in line with full year expectations. The company has also announced the appointment of Andrew Goss as Nonexecutive Director. We see this as an encouraging update and are maintaining our earnings forecasts at this juncture. We continue to believe Vertu remains well positioned to deliver significant medium-term shareholder value from here.
Vertu has delivered a robust AGM statement essentially confirming it continues to trade in line with expectations. There is good evidence of ongoing market share gains being made, and the performance in used vehicles was the key positive highlight. We are maintaining our earnings forecasts at this juncture and continue to believe Vertu remains well positioned to deliver significant medium-term shareholder value.
Vertu has announced its first acquisition in over two years, as it has acquired Hughes Group, which is a well-established Group backed with a strong operational management team. This creates a significant cluster in the M4/M40 corridor for Mercedes as well as having its first Mercedes Commercial Van franchise. We are upgrading our 2020 and 2021 EPS forecasts by 6-8% on the back of this transaction
Vertu has delivered a robust set of FY2018A results, which are 3% ahead of our forecasts at the adjusted EPS level. We maintain our headline forecasts at this juncture, following good levels of outperformance in March and April this year despite a tough market backdrop. We believe the asset backing in this Group remains compelling and it remains well positioned to deliver strong levels of shareholder value across a number of different fronts.
Vertu Motors Flash : Q4 Trading update
Vertu has released a trading update this morning confirming trading performance for 2018E will be moderately behind market expectations. The new car market is playing out as we expected with further declines in demand already factored in to forecasts, however a weaker consumer environment and lower levels of pre-reg yoy is now beginning to impact volumes and margins in the used segment. We update our forecasts to reflect this deterioration. We now expect adj. PBT in 2018E of £28.0m (£31.5m previously) going to £25.0m in 2019E (£27.6m previously) and £29.5m in 2020E (£31.0m previously). That said, the asset backing remains compelling (Freehold and long leasehold property of £175m) and a normalised FCF yield building to 8.0% by 2020E.
Edison Investment Research is terminating coverage on Vertu Motors (VTU). Please note you should no longer rely on any previous research or estimates for this company. All forecasts should now be considered redundant.
Vertu’s strong defensive qualities have been clearly demonstrated during H118. A falling new car market and used car margin pressures have been absorbed, yet underlying PBT has again moved ahead. While we have cut our immediate profit estimates to reflect the cautious trading climate, we believe that the continued investment in upgrading facilities and the future acquisition potential is not recognised in the current share price.
Vertu has reported another record performance for H1 2018, with adjusted EPS +5% ahead of our expectations. We maintain our FY 2018 assumptions at this juncture but take a more conservative view in FY 2019 and FY20, which results in EPS downgrades of 10% and 8% respectively. That said, the asset backing remains compelling and we believe the Group remains well positioned to deliver disciplined growth over the medium term.
Vertu has released a pre-close trading update this morning, confirming it continues to trade in line. The group has also announced the sale and leaseback of one of its freehold JLR sites for a cash consideration of £14m (vs a book value of £10m). The balance sheet remains extremely healthy, with freehold property most recently stated at £182m, which is above the current market cap of £176m. The strength of the balance sheet means there is significant capacity to maintain its consolidation strategy if the right opportunities arise alongside a share buyback programme. We update our forecasts to reflect the increased cash resources following the asset sale and are maintaining our trading assumptions at this juncture (albeit September trading remains key). We continue to believe Vertu remains well positioned to deliver strong growth over the medium term.
Vertu has delivered a robust AGM trading update despite clear signs that market conditions have softened in new car volumes and used car margins. The balance sheet remains extremely healthy, and there is significant capacity to maintain its consolidation strategy if the right opportunities arise alongside a share buyback progarmme. We are maintaining our forecast assumptions at this juncture (albeit September trading remains key), and continue to believe Vertu remains well positioned to deliver strong growth over the medium term.
Today’s AGM update confirms positive trading performance and profit growth after the 1st 4 months of H1 puts them on track to meet FY expectations. Since March (when purchases were pulled forward to beat April VED changes), Vertu confirms that New vehicle conditions have got more difficult, as have margins in Used, especially in premium brands. These dynamics were already factored into forecasts though, following the revisions in Q4 last year - albeit they arrived slightly later than was widely feared. Aftersales LFLs and profit continue to increase driven by retention and service plan strategies. Overall, therefore today’s update is in line with expectations. Interestingly Vertu also announces it is seeking buyback permission as part of its capital management strategy. However, given they prefer to retain the cash for accretive M&A this appears to be capped at just £3m (<2%). Having raised £35m at 62.5p, this isn’t transformational but buying back at 43p will clearly help reverse some of previous EPS dilution as should completion of future transactions when it comes to deploying this cash. After falling a further 11% over the last 3 months, Vertu’s share price sits slightly below its property asset value (c45p) and trades on a P/E of just 6.8x or 3.6x EV/EBITDA and yields 3.4%. We estimate that the FCF yield reverts to almost 11% next year when the capex cycle starts to revert to normal. Today’s reassuring update should help the shares recover some ground but we feel the conclusion of some acquisitions will be a more meaningful catalyst in the future if done at the right price.
Vertu Motors has produced another solid set of figures, supported by a series of key investments to strengthen the medium-term outlook. Trading in the new car market has become more challenging, but the key used car and aftermarket operations continue to progress consistently.
Vertu has reported PBT growth of 15% to £31.5m in FY17 (ended Feb), which is in line with consensus. Around half of this growth was driven by acquisitions made in the year. After factoring in the dilution from the £35m equity raise at 62.5p, FD adjusted EPS increased c5% to 6.4p (cons. 6.1p) and RoE edged down to 10.8% (11.4%). Including £50m M&A spend and increased capex, there was only a £2m cash outflow resulting in £21m Y/E net cash (vs cons. £2m). The beat was mainly a function of improved w/c. With debt facilities and unencumbered stock, available financial resource is over £100m, giving flexibility to fund future M&A opportunities should they arise. No further acquisitions have been announced as vendor price expectations are currently unreasonable. Property asset backing has increased to £182m (45p/share), with around half of the estate leased. The final dividend is 0.9p (+6% YoY). Vertu is confident about FY prospects having had a good start to FY18, with strong trading up to end April and benefits of a cost efficiency drive. Guidance confirms that, after peaking in FY18, a normal investment cycle thereafter will see a jump in FCF (yield c10%). See our sector note dated 26 Sep for more details. On a P/E of just 7.3x (4.0x EV/EBITDA) the shares should react positively to todays newsflow.
Vertu has reported another record performance for 2017A, with adjusted EPS +7% ahead of our forecast expectations. We are maintaining our cautious FY assumptions from 2018E and beyond. The Group has very strong foundations in place given its growing aftersales and used car operations accounting for over 70% of gross profit, coupled with having the strongest and most flexible balance sheet in the sector. We therefore believe Vertu remains well positioned to deliver strong growth over the medium term.
We anticipate a robust set of results from Vertu on 10th May, and expect to see continued progress in its core businesses of used cars and aftersales. We believe our forecasts for the coming year (Feb 2018) are very conservative, particularly following a record Q1 period of new car registrations seen in the wider industry. However, we would anticipate this backdrop to get tougher from here. We believe the near-term valuation remains compelling and very attractive, with the current market capitalization largely asset backed with a progressive 3% dividend yield on offer at present and a normalized FCF yield (from 2020) in excess of 10%.
Management has reiterated FY17E guidance, following continued strong trading during H2. Momentum in the core Aftersales and Used Car divisions (c.70% of gross profit) is impressive and gives us confidence in Vertu's ability to grow profits over the long-term in these resilient and highly fragmented segments.
Vertu has released a robust trading update, essentially confirming it continues to trade in line with expectations. We are maintaining our cautious forecast assumptions for now as we anticipate the backdrop particularly in new cars to get tougher from March. That said, the continued progress in aftersales and used cars remains extremely encouraging. We believe the near term valuation with a 2018E P/E of 7.8x and an EV/EBITDA of 5.1x more than reflects this any future trading risks, and remains at an unwarranted discount to its peers despite having the most conservative balance sheet.
Vertu’s interim results demonstrate ongoing momentum despite a more challenging trading climate. Investment has continued, building the medium-term potential. Recent share price weakness is understandable, in the light of weak sterling, but the rating does not recognise the medium- to longer-term growth potential.
H1 underlying PBT of £19.5m (+15%) is slightly ahead of our forecasts and management is reiterating FY17E guidance. The key month of September delivered LFL y-on-y growth giving us confidence in our FY forecasts.
Vertu has reported another record performance for H1 2017, with adjusted EPS +4% ahead of our expectations. We are maintaining our FY forecasts despite softer new car sales, as we have confidence in its aftersales and used car business accounting for 72% of gross profit. The shares and indeed the sector look oversold to us, and while there could be modest earnings downside in 2017, we believe more significant EPS risk has been factored in.
In line results, we leave FY forecasts unchanged.
We anticipate a robust set of H1 results from Vertu on 12th October. While trading conditions may well get more difficult in 2017, we do think the Group is well positioned and has one of the strongest balance sheets in the sector. The shares look oversold on this basis and it continues to trade at a sector discount.
Vertu has announced a strong H1 pre-close statement. In line with the June AGM update, trading has continued to be robust. SMMT data since April shows the trend in UK private vehicle sales slowing but momentum is strong in Aftersales and Used Cars, c70% of group gross profit.
Vertu Motors have released a solid trading update this morning, showing performance in line with expectations with record revenues and profits for the group expected for the full year. We remain cautious on the outlook but note that the September order book is progressing well, which is encouraging. We leave our forecasts unchanged for the full year. We continue to believe the shares look oversold at current prices. The company has a track record of being a proven consolidator and has a robust balance sheet. There is significant opportunity for longer term value at the current price, in our view.
Vertu has delivered LFL revenue growth of +8.4% (4 months to 30 June). The key Aftersales and Used Cars divisions, c.70% of gross profit, have continued to perform strongly and have seen no negative impact post Brexit vote.
Vertu has issued its AGM statement, which essentially confirms it is trading in line with expectations. Aftersales and used cars are the key positives. We are maintaining our forecast assumptions for now as we remain cautious on the trading outlook, but believe the shares represent excellent value down here and is underpinned by its strong cash rich balance sheet.
Despite 15%+ underperformance in VTU’s shares against peers YTD, we cut our target price and recommendation today, following a review of free cash flow, working capital and capex. VTU’s model is impressive, and we believe that P&L forecasts are deliverable, but with signals pointing to a more challenging macro canvas, we need a higher FCF yield to compensate for the uncommonly high dependency, in our view, on capricious working capital flows.
Despite 15%+ underperformance in VTU’s shares against peers YTD, we cut our target price and recommendation today, following a review of free cash flow, working capital and capex. VTU’s model is impressive, and we believe that P&L forecasts are deliverable, but with signals pointing to a more challenging macro canvas, we need a higher FCF yield to compensate for the uncommonly high dependency, in our view, on capricious working capital flows
Vertu has acquired 5 dealerships representing a mix of premium and volume brands for a consideration of £18.7m. We increase our FY17E EPS forecast by 2.8%, with uplifts of 5.9% to 7.9% further out. There is a strong geographic fit offering synergy benefits and the deal introduces Toyota as a new brand partner.
As expected, Vertu is deploying the equity capital from the placing quickly, this time acquiring a long established business comprising of five outlets in Chesterfield and Derby. This is a strong geographic region for the Group and adds further scale to its Land Rover, Skoda and Nissan franchise. In addition, this also adds Toyota as a new brand partner. We anticipate this transaction to be EPS enhancing from the outset, and believe Vertu has acquired this for an EV/EBITDA multiple of 6x, which is in line with its stated strategy. The shares continue to look significantly undervalued to us, particularly in the context of the EPS potential as it continues to utilise its cash rich balance sheet to execute its proven consolidation formula.
Another fine set of figures reinforces the efficacy of Vertu’s consistent investment strategy. FY18 EPS will be held back by the dilution impact of the recent equity fund-raising, but deployment of the cash should ensure that the group can sustain its medium-term momentum.
Headline FY16 numbers are in line, with underlying PBT of £27.4m (+25%). Net cash was significantly ahead. Current trading has been strong but at this stage we do not change our forecasts, which have already seen significant upgrades since first published.
Vertu has reported another record performance for the 2016 financial year, with adjusted PBT coming in bang in line with our forecast and adjusted EPS being 4% ahead. We are retaining our forecasts following the upgrade to our 2017E EPS estimates at the pre closed stage in March. With the shares still below their placement price, we see significant value longer-term, and believe that the company is in a strong position to deliver EPS of 8p once it deploys its capital. This would put the stock at a P/E of sub 8x, a >20% discount to its peers, with over 30% EPS upside from our 2017E forecast.
Vertu has delivered FY results marginally ahead of expectations, especially on the cashflow front after strong w/c performance, although some of the dynamics there might be difficult to sustain. Current trading provides a good barometer of where motor retailers are in the cycle. Flat LFL profits in New suggest we are now mid-cycle in this the lowest margin division, whereas strong growth in used and high margin aftersales highlight the lagged effect into these important divisions. This might help narrow the wide sector valuation discount that has opened up in recent months. Commentary on LFL profits in VAG brands (up so far in 2016) is also encouraging. We don’t expect forecast changes today, but accretive M&A is flagged in the coming months. Like other peers, Vertu shares have scope to rebound.
3% PBT beat, exceptional cash generation, board “confident about current year”.
Vertu has acquired Leeds Jaguar for a consideration of £650k. There is strong growth potential, although the acquisition is small and we do not change our forecasts at this stage.
Vertu has announced another acquisition this time a Jaguar dealership in Leeds. This will eventually operate alongside its existing Leeds Land Rover operation under the award winning Farnell brand and management structure. We expect this transaction to be modestly EPS enhancing after the first full year of ownership. The shares have now drifted below the placing price, which we believe offers significantly long term upside as a proven large scale consolidator in this industry.
We update our forecasts on VTU to take account of the 8th March trading update that noted that FY 2016 would be “ahead of current market expectations”, and the subsequent placing of 56m shares at 62.5p.
We upgrade FY16E EPS +4% after Vertu’s very strong preclose update. Outperformance continues across all key categories and LfL revenue grew +7.2%, accelerating from +5.2% in H1 as self-help drives organic growth. The announced £35m equity fundraise will allow Vertu to extend its impressive buy-and-build track record, which includes £50m of M&A since September. Improving return on capital should drive long-term value creation. The shares trade on CY16 PER of 10.1x for 3yr forecast EPS CAGR of +15.4%.
Vertu has announced another strong trading update, leading us to upgrade our 2016E EPS by 8%. The group has also announced a further £35m placing, which if executed as planned, should enable it to generate adjusted PBT heading in excess of £40m implying EPS of 8.0p. We believe that the shares remain undervalued as Vertu is the trusted consolidator in the sector with the opportunity to deliver significant shareholder value from here.
Strength in all business lines – shares remain cheap. Buy.
Vertu has delivered a strong trading performance in the final 5 months of the year (to Feb). Notable areas include Used and Aftersales, and its performance in New is also impressive. This results in a beat vs market consensus (which we believe is at least 5%). A strong order book for March (+11.6% LFL) and a positive update on integrating recent acquisitions means this upgrade should flow through to FY17/FY18 estimates. Vertu reiterates our opinion that market conditions are favourable and highlights additional M&A opportunities currently being assessed. With part utilisation of its facilities another equity raise may be required and is being assessed as part of a refinancing. Shares will advance.
Vertu has acquired 3 Mercedes-Benz outlets for a consideration of £31m. We expect the deal to be 3% and 6% EPS enhancing in FY17E and FY18E respectively. There is scope for greater upside beyond this as management turns the businesses around. The deal includes £20m of freehold property, supporting the company's strong balance sheet. The dealerships represent Vertu's first Mercedes outlets and introduce an additional premium brand with an impressive recent track record. This brings further diversification benefits and will be supportive to group margin over the medium-term.
Vertu has announced another acquisition this time its move into the Mercedes brand, which should further develop its premium mix. The price paid for this business should equate to 7-8x prospective EBITDA, which we believe is attractive given its freehold asset mix in well established locations and customer demographic. We have upgraded our 2017E and 2018E EPS forecasts by 3% and 6% respectively to reflect this transaction, and believe the current 2017E P/E of less than 10x for 16% projected EPS growth is highly attractive.
Vertu has announced a key appointment in Tim Tozer, who will join as a group operations director taking a seat on the main operational board. We see this as a clear sign of adding more expertise to support long term future growth in the business. We continue to believe the share remain undervalued, and anticipate a robust trading update in early March.
Vertu has acquired 3 Honda dealerships for a consideration of £2m. There is strong turnaround potential, although the acquisition is small and we leave our forecasts unchanged at this stage. The deal serves as a reminder of Vertu’s disciplined approach to M&A, the significant scope for future acquisitions in a highly fragmented market and the company’s strong manufacturer relationships. Vertu remains our top pick among the UK focused dealerships groups. Reiterate BUY.
Vertu has announced the acquisition of three Honda dealerships from Lookers for a total consideration of £2m. We think this is a good transaction in the context of the price paid, coupled with its management expertise with this brand franchise and further consolidation in regional clusters. We are upgrading our 2017E and 2018E EPS forecasts by 1-2% on the back of this transaction. Trading on 12.3x 2016E EPS with an EV/EBITDA of 7.4x, the shares look excellent value following share price weakness of late backed with double digit EPS growth anticipated every year to 2018E.
Vertu is our top pick among the UK motor retailers. We see continued market outperformance driven by robust organic growth and future M&A. Well-invested operations are set to deliver strong growth in used cars and aftersales, which are the key profit contributors. The strong balance sheet is supportive of further acquisitions and management has an excellent track record of delivering on this strategy. The shares offer attractive value at current levels.
While the VW situation may have undermined short-term market confidence about the motor retail sector, industry dynamics continue to favour the larger dealership groups. Vertu, with its strong balance sheet and proven ability to secure and improve acquisitions, has a potential that we suggest is not recognised in its current rating.
Strong interims prompt c5% EPS upgrades, cash better than expected.
H1 underlying PBT of £17.0m (+28%) was 10% ahead of our estimate and management expects full year results to be ahead of expectations. We prudently raise our FY16E EPS by +2%, with larger increases in outer years as the recent SHG acquisition impacts. H1 saw encouraging growth across divisions, particularly in Used and Aftersales. Underlying group operating margin increased +30bps to 1.5% as the turnaround of acquired dealerships continues to bear fruit. September trading was strong and management continues to see a positive outlook. The fundamentals for long-term growth remain very much in tact.
Vertu has delivered a very strong set of H1 results, which are some 17% ahead of our forecasts at the adjusted EPS level. Cash conversion was in excess of 200% during the period due to multiple initiatives to drive improvements in working capital. Within the core business, the star performance came from the aftersales department, reflecting the strong systems and processes put in place over many years. We are upgrading our 2016E EPS estimates by 4% as previous acquisitions perform more strongly than anticipated, with 2017E and 2018E EPS also upgraded by 4% and 6% respectively following the recent SHG transaction.
Strong H1 PBT growth (+28%) and success in Sept (key month in H2) puts Vertu on track to beat FY expectations. We expect upgrades of c4%. Further potential depends on how the new GAP rules bed in. Commentary supports our suspicion that the VAG situation could be an opportunity, not a threat - so the general outlook remains positive. W/C performance was a stand-out in H1, aiding c/flow and investment in growth. Shares should advance on c10.7x cal16.
Vertu has acquired an Audi and two Volkswagen dealerships for a cash consideration of up to £14.3m. The deal is expected to be earnings accretive from FY17E. We take a long-term view and see the acquisition as strategically sound, albeit we do acknowledge the recent negative newsflow around VW and Audi. The deal brings Vertu's first Audi dealership, further diversifies the overall portfolio with an increase in premium mix, and offers synergy opportunities with existing operations. Maintain BUY.
Vertu has announced an acquisition that may raise some eyebrows given the current crisis at Volkswagen. However, we believe this will further develop its premium mix, and also strengthen its relationship with a key manufacturer player in the UK market with c20% share. This transaction is expected to be EPS enhancing for the first 12 months of ownership, and the shares continue to look good value in our view following share price weakness of late.
Vertu's H1 pre-close update for the 5 months to 31 July highlights continued momentum across all divisions. Management expects FY16 results to be in line with current growth expectations. The outlook statement is positive, with LFL new car retail orders for September ahead of last year. We are encouraged by the strong growth within Services, which offers a high margin, sustainable revenue stream that is supportive of the Group's long-term profit growth. The shares currently trade on a calendar 2015 PER of 11.3x, which we see as an attractive valuation. Reiterate BUY.
The pre-close trading update shows progress in Vertu Motors' continued transition towards capturing more of the automotive value chain with LFL growth in Service revenues of +6.4% outpacing LFL group revenue growth of +5.0% and a solid performance delivered in Used. A strong LFL order book ahead of the key plate change in September provides support for H2 expectations. On unchanged forecasts for FY16 adj. PBT and adj. EPS of £24.1m and 5.44p, respectively, we reiterate our Buy recommendation and 87p target price.
Vertu continues to deliver good organic volume, revenue and profit growth as it continues to benefit from its strategy to improve the quality of its earnings. Importantly, the order book for September appears to be building ahead of last year’s record volume, and the balance sheet remains very strong ahead of any further potential M&A activity. Within the mix, its aftersales business is making pleasing progress, with used cars also progressing well in light of very strong comparatives from last year. The underlying performance in new cars is also respectable, with management showing good price control against a backdrop of rising pre-registration activity, which is likely to continue. With the new car market stabilising at a high level, consumer spending robust and cars very affordable, we believe the sector prospects remain sound. A rising car parc resulting from this is also beneficial for higher margin aftersales, which Vertu should benefit from given its successful customer retention strategy. We maintain our forecasts following an upgrade in May, but believe our forecasts are conservative with upside potential as we progress into H2. Overall, we believe the valuation remains undemanding, and continue to think the company is well positioned for further growth.
Last week's Capital Markets Event reaffirms our confidence in Vertu's growth story. There is a strong culture that pervades the business, which we believe has been crucial in driving the company's outperformance against the market. Management's keen focus on key performance metrics, the company's well invested support functions, its strong relationships with manufacturers and rigorous approach to acquisitions all continue to underpin our confidence in the business. The recent trading update reassured on full year expectations and Vertu continues to be our top pick within the UK motor retail sector. Reiterate BUY. TP 100p.
The Capital Markets Event by Vertu Motors – the 6th largest automotive retailer in the UK – provided a reminder of the transition in the group's profile from an acquirer of underperforming automotive franchises, to a credible automotive retailer with market presence, a proven track record with major OEMs, a platform to grow its exposure to the prestige market, and a focus on capturing more of the automotive value chain. We were reassured of its capacity to deliver attractive earnings growth and returns. With the shares trading on a 24% discount to our target price, on unchanged forecasts, we are happy to reiterate our Buy stance on the shares.
Vertu's positive AGM trading update highlights continued growth across the business. YTD performance is in line with full year expectations and we leave our forecasts unchanged. In May, we upgraded our FY16 and FY17 PBT estimates by 6% and 10% respectively, following acquisitions and strong full year reporting. We believe the risks to our forecasts remain on the upside, driven by the continued turnaround of acquired dealerships, a healthy acquisition pipeline and strong operational gearing. The shares trade on a CY15 PER of 11x - not expensive for the risk:reward profile on offer. BUY.
Vertu has announced a confident AGM trading update confirming it continues to trade in line with market expectations. The Group has seen continued growth in LFL revenues and gross profits across the business, while at the same time keeping overhead costs firmly under control. Management also continue to tweak the portfolio and remove loss making franchises and add new brands to the portfolio (Skoda). In addition, the Group has also divested a vacant property at a good price, which should help to drive future levels of ROCE.
Trading momentum has continued into the current financial year, with today's AGM update confirming an in-line performance since the start of the financial year. On unchanged financial forecasts, ahead of the Capital Markets Event (23rd & 24th July) we retain our 87p target price and Buy recommendation.
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