Marshall Motor Holdings PLC (LON:MMH) pre-close statement indicates that the company continued its strong performance in 2017, despite challenging market conditions that are persisting into 2018. FY17 results are expected to be ahead of previously upgraded pre- and post-tax expectations, and we have lifted our PBT estimate 2% to £28.8m. We have reduced our FY18 PBT estimate by £1m to reflect slight additional margin pressures. The disposal of the Leasing business has strengthened the balance sheet and leaves the company well placed to implement its growth strategy.
H217 performance
In H1, MMH reported a marginal 0.4% decline in like-for-like new car unit sales to retail customers versus an overall new market decrease of 4.8%. While H2 continued to see declines, falling by 9.2%, MMH maintained its market outperformance largely by virtue of its brand portfolio. Working closely with its brand partners, MMH has been able to deliver to shared objectives. Following a 5.8% reported increase in used unit sales in H1, the company also performed well in H2 supported by a disciplined stocking policy. High-margin Aftersales revenues remained stable with H2 broadly consistent with the 2.3% like-for-like increase reported in H1. We now expect a small year-end net debt position.
Outlook
The new car market has remained depressed on the retail front through the second half of 2017 and last year’s boost from VED changes that supported H1 sales is not going to recur. The company highlights the Society of Motor Manufacturers and Traders’ forecast for a decline of 5.4% for the UK new car market for 2018, with continued political and economic uncertainty. While we maintain our FY18 sales forecast level, we suspect the tougher trading environment is likely to trim margin expectations modestly. As a result, we have cut our PBT estimate by £1m to £23.5m (-4%), with EPS also falling 4% to 23.8p. The company completed the strategic disposal of Marshall Leasing in November, significantly reducing year-end net debt. In addition to a £120m revolving credit facility, the company is very well positioned to drive growth.
Valuation: Discount to peers
MMH is still trading on an FY18 P/E of just 6.7x, an 11% discount to UK automotive retail peers. Our fair value calculated on an FY18 basis falls 3% to 232p, reflecting the higher starting net debt compared to our previous forecast and the lower earnings contribution.
