Vertu Motors - Analyst interview, Zeus Capital
Companies: VERTU MOTORS PLC
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|12/10/2016 07:00:16||London Stock Exchange||Unaudited Interim Results|
|06/09/2016 07:05:03||London Stock Exchange||Notification of Directors' and PDMR's interests|
|06/09/2016 07:00:11||London Stock Exchange||Notification of Directors' interests|
|01/09/2016 07:00:11||London Stock Exchange||Pre-Close Trading Update|
|04/08/2016 17:24:18||London Stock Exchange||PDMR Share Purchase|
|20/07/2016 16:15:33||London Stock Exchange||Holding(s) in Company|
|20/07/2016 11:04:15||London Stock Exchange||Result of AGM|
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We adjust our forecasts following Lookers impending disposal of its parts division and subsequent re-investment in two premium dealer groups. The company has acquired Drayton for £55m which was conditional on the sale of the parts division and separately completed a further £27m acquisition of Knights. Management have deleveraged following the transaction with our 2017 net debt/EBITDA forecast now 0.3x and we estimate the company has over £100m of firepower available. We would back this management team to deploy this effectively, building long term value for investors.
1Spatial delivered a soft first half performance showing slower revenue development in its higher-margin Geospatial business, thereby impacting overall adjusted EBITDA. The group has a strong order book (of which the Geospatial component is up 30% y-o-y) and has built up a solid pipeline of opportunities which it expects to convert in the next six months. As such, the group is maintaining guidance for the year, albeit performance will be heavily H2-weighted. We believe the 1.1x EV/Sales and 6.2x EV/EBITDA Jan’17 rating does not reflect the potential of an IP-rich, productised business that is leveraging partnerships to scale growth – but recognise that stronger revenue traction is required to buoy confidence and drive the re-rating of the shares.
Elegant has released a trading update confirming that it is trading in line with 2016 expectations. The dividend has been maintained, which is currently yielding 11% (trough cover of 1.2x 2017). The NAV is 184p, which also provides significant freehold asset support. However, we are reducing our 2017 and 2018 forecasts, which drives an 6% reduction in REVPAR in 2017 vs. our previous assumptions and is largely occupancy driven. We also factor in additional corporate costs to support the growth with the room count +35% since IPO factoring in Waves and its latest management contract.
In an unscheduled trading update, Marshall Motors indicates that trading performance has been positive so far in H2, including the key plate change month of Sept. This reflects a healthy combination of LFL growth and the acquisitions of SG Smith and Ridgeway. Management therefore remains confident in delivering FY expectations. Structural changes within the motor retail industry are resulting in wide divergence in performance between weaker smaller operators and stronger larger players. Our research has consistently highlighted this and we believe read across for the latter (including Marshall Motors) should not automatically be drawn from headline data on the market e.g. from the SMMT or BCA. With the valuation down to a P/E of 4x (11% FCF yield) the shares have scope for a rebound today.
Since its inception in 2010, the Conviction List has outperformed the market in 13 of 18 periods and a reinvested Conviction List would have returned 255% against a Small Companies index that would have returned 130%. Our Conviction List returned 3.7% over the last quarter; this was set against the benchmark UK Small Companies index that returned 11.3% over the same period. Our Q4 portfolio reflects our outlook for a temporary sweet spot for UK growth during the second half of 2016. The downside risk from the uncertainty of the EU Referendum result has been countered by stimulus from the Bank of England, signs of a looser fiscal stance and an 18% YoY reduction in the Sterling Exchange Rate. Compressed corporate fixed income spreads continue to provide a valuation underpin for global equities.
The online fashion retailer posted a 26% surge on its FY16 revenues to reach £1,445m. Retail sales amounted £1,403m. Sales in the home market were up 27% to £603.8m. International sales edged up 25% to reach £799.9m, contributing 57% to total retail sales. A strong favourable momentum was experienced in the USA with a 50% sales’ rise (£179.2m), underpinned by a positive FX impact as the performance at constant rates was 40%. In Europe, retail sales amounted to £375m, i.e. a surge of 28%. In other regions, adverse FX moves slowed growth to a reported 9% while sales at constant rates edged up 14% to £245.8m boosted by positive momentum in Russia and Australia. The gross profit jumped 26% to £722.2m bringing the gross margin to 50% vs. 50.1% a year earlier. The retail gross margin slipped 30bp to 48.5%. The pre-tax profit before exceptional items edged up 37% to £63.7m. The net profit was down 33.7% to reach £24.4m, backed by a one-off exceptional legal settlement of £20.9m and the discontinued operations in China. The financial position remains strong with 45% increase on cash and cash equivalents to £173.3m, despite a surging capex to £79.2m vs. £50.4m in FY15. The expansion of the platform has led the active customer base to be enlarged by 25% and the average basket value increase by 3%. A slight slowdown is expected for FY17 with growth guidance of 20-25%.