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Marshall Motor Holdings Plc

Marshall Motor Holdings PLC Pre-closed update & 2017 upgrade

Marshall Motor Holdings (LON:MMH) has confirmed it has traded ahead of expectations for FY 2017. The outlook for 2018 and beyond is less certain and is consistent with our industry view. We upgrade our 2017E adj. PBT forecast by 3.6% reflecting the positive guidance in this morning’s statement. We leave our 2018E and 2019E forecasts unchanged. The shares are trading at a clear P/E and EV/EBITDA discount to the sector (32.5% and 28.6% in FY1 respectively albeit this narrows to 9.7% and 5.6% in FY2). The group has a robust balance sheet following the leasing disposal, strong asset backing with >£100m freehold and long leasehold assets and a 2017E 4.0% dividend yield at the current valuation.

Trading update: MMH has issued a pre-close trading update this morning, which confirms that it will trade ahead of expectations for 2017A. The group has maintained the good momentum from H1 across the business and has sustained the outperformance against the new car market in H2. Central costs are to be in line with expectations. Following the disposal of the leasing business and H2 performance, we expect a net debt for the full year to be sub £5m (vs £7.0m previously assumed).

Key performance drivers: The group maintained its track record of outperforming the new car market in H2 despite some margin pressure coming through, reflecting the group’s attractive brand mix and good geographic locations. We also note the group highlighted positive actions from brands partners in the new car business, which is encouraging given current conditions. In the used car business, the group highlighted a disciplined stocking policy as a key factor in the strong H2 performance with margins hardening through the period following the successful integration of the ridgeway used business. The aftersales business continued to grow steadily with the H2 growth to be broadly in line with the 2.3% achieved in the first half of the year.

Forecasts: The outlook statement for 2018 and beyond was cautious highlighting the uncertain economic environment, the SMMT forecast of a 5.4% decline in the new car market and one-off benefits in 2017 such as changes to VED which will not be repeated in 2018, leading to a more normalised performance. We upgrade our 2017E adj. PBT forecast 3.6% to £29.0m (£28.0m previously) to reflect the company’s positive guidance for the full year. We remain cautious over the condition of the market over the medium term and leave our forecasts for 2018E and 2019E unchanged.

Zeus Investment view: The shares are trading at a clear P/E and EV/EBITDA discount to the sector UK dealer average (32.5% and 28.6% in FY1 respectively albeit this narrows to 9.7% and 5.6% in FY2). The group has >£100m of freehold and long leasehold assets on the balance sheet (as at the interim results) providing strong asset backing. This is supported by our valuation methodology which implies a value of 236p per share. The group has a robust balance sheet following the leasing disposal, strong asset backing with >£100m freehold and long leasehold assets and 4.0% dividend progressive yield at the current valuation.

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Disclaimer: Statements in this article should not be considered investment advice, which is best sought directly from a qualified professional.