Zeus Capital Head of Research Mike Allen caught up with DirectorsTalk for an exclusive interview to discuss Marshall Motor Holdings PLC (LON:MMH)
Q1: Marshall Motors Holdings plc have just provided year-end results, can you talk us through the important bits?
A1: The results are slightly ahead of our expectations, revenue was 3% below our forecast but the underlying EBIT was 4% ahead, as was the PBT as well with interest costs coming broadly in line with where we expected. A lower tax charge meant that the adjusted earnings per share was 6% ahead of our forecast, the dividend was exactly as we planned, as we forecast, and that was up 85% year on year and cash generation looked very strong to us, particularly on working capital with net debt, including the leasing debt, coming in at 1% below our forecast at £119 million.
Q2: So, some pretty positive results then, what were the key drivers?
A2: Marshall Motors delivered growth across all of the major segments of the business, new car volumes were up 5% on a like-for-like basis, although the second half like-for-like growth rate of 8% was quite impressive with the market just doing 1% during that period and private registrations during the second half of 2016 were negative so that was a good performance. Used units were up nearly 0.5% on a like-for-like basis but the revenue impact was a lot stronger as they benefited from higher selling prices and gross profits were up strong year-on-year as well. Aftersales saw a nearly 6% increase on a like-for-like basis which we think is a healthy number and the leasing business delivered flat profitability year on year.
Q3: What’s the outlook like for the company?
A3: The near-term outlook for the company and for the industry is still positive, I think the order book in March is building well and a number of dealers have commented on that during the last couple of weeks so I think trading in the near-term is positive. However, I think, as we go through Q2/Q3 of this year, we do think industry conditions will get tougher and I think management here have got a bit of caution about that as well but I think near-term it is all set to be quite a strong March for the sector which is good.
Q4: Now, Marshall Motor Holdings plc are currently trading around the 170p mark, what do you think about the stock at the moment?
A4: I still think their shares are cheap in terms of PE just short of 7 times to EBITDA below 5 times so it’s definitely at the low end of the sector range. I think there’s always going to be a slight discount for the sector just because of the liquidity constraints in the business and maybe a little bit less balance sheet flexibility than some of its peers. However, I think on a long-term view, the shares are cheap, there’s a lot of asset backing with underpinning the current market cap of the business and the business is performing well and the acquisitions that they did during the last 12 months are bedding in well. So, I think the shares along with the sector look very good value at the moment and that’s based on very cautious assumptions that we’ve put together.
