Zeus Capital Head of Research Mike Allen caught up with DirectorsTalk for an exclusive interview to discuss Vertu Motors Plc (LON:VTU)
Q1: Now, Vertu Motors Plc announced today a trading update for the year ending 28th February 2017. Mike, what were the key drivers that kept Vertu in line with expectations and what are their current trading patterns like?
A1: So, overall their trading in line with expectations, as you say, they continue to experience continued growth and volumes, revenue and profits across the board. Acquisitions that they’ve done in prior and previous years are also going to plan as well which is good and management have a good eye on controlling operating costs at the moment as well, albeit in an inflationary environment.
Looking in the mix, aftersales continue to see very strong growth, like-for-like service revenue was running at 6% and growth profits were running slightly ahead of that as well and that’s 7 years of similar growth in consecutive so that’s very good.
The used car business also continues to trade very well too, like-for-like volumes there were nearly 8% and gross margins were also ahead of last year as well. Which we think is very encouraging given the size and scale of those markets.
New car has become more difficult, so retail volumes grew at 2% but on a like-for-like basis they were down 9%, however against that backdrop Vertu did manage to control their gross margins in that division and slightly improved them. This is good news as they remain committed to pricing discipline in that market.
So, overall, performance is led by aftersales and used cars.
Q2: Has this changed your forecast on the company in any way?
A2: No, so 2017 our forecasts are unchanged and they’ve been unchanged for a while now. 2018, we were more cautious on the sector, back in November, as we’ve seen new car sales falling fairly consecutively during the second half of last year. So, we think our forecast assumptions are very cautious for 2018 but we see no reason to change those assumptions at this juncture.
Q3: So, what does the valuation look like for Vertu Motors Plc?
A3: Valuation, to us, looks very appealing, bearing in mind we think our forecast assumptions are very cautious. PE is on sub 8 times at the moment, EV/EBITDA of around 5 times, again bearing in mind the balance sheet here is very strong, we do expect a small amount of cash position this year and there is a lot of uncommitted facilities in there as well, particularly in used cars. So, very strong balance sheet which is also heavily asset-backed.
