Marshall Motor Holdings (LON:MMH) has announced two sensible acquisitions comprising 6 dealerships, making it the largest Skoda dealer in the UK with 11 dealerships. We anticipate this should be c5% EPS enhancing over time albeit we recognise a turnaround is required as the businesses collectively are loss making. We believe the valuation remains compelling backed with a very robust balance sheet.
Acquisitions: MMH has announced it has completed two acquisitions comprising six Skoda franchised dealerships. As a result, MMH is now the UK’s largest Skoda retailer with 11 locations. The acquired sites in Leicester and Nottingham (via the Sandicliffe acquisition) as well as Bedford, Harlow, Letchworth and Northampton (via Progress Bedford Ltd) is contiguous with existing sites along the M1/M4/M25 and A34 corridor. Both acquisitions were completed with the full support of Skoda. This appears to be a good time to invest in this brand with 3.2% market share, and 13% growth in the last five years. There is significant product to come, particularly across the SUV sector, and Skoda is also expected to benefit from the VW Group’s €44bn investment in mobility solutions and electrification strategy.
Financials: The consideration is £3.5m for the goodwill and assets of the 6 sites. The acquired businesses generated a PBT loss of £0.4m to December 2018, and was funded using existing resources. This is expected to be EPS dilutive in 2019. However, it is expected to be enhancing post 2020E, and we estimate these sites should generate at least £1m in the next 2-3 years, with the long term potential closer to £1.5m (roughly £250k per site).
Impact on forecasts: We are maintaining our forecasts, and will review our 2019E and 2020E assumptions in detail post results announced on 13 March. We have updated our net debt expectations to reflect the £3.5m consideration paid for the business. We now expect net debt in 2019E of £2.2m, and net cash in 2020E of £1.9m, leaving MMH with a very healthy balance sheet. Our forecast assumptions from 2019E are at the lower end of the consensus range following our caution ahead of Brexit, albeit MMH have already indicated it expects to announce record 2018 results, which is reflected in our forecasts.
Valuation: Marshall Motor Holdings is trading on a 2019 P/E of 7.4x and an EV/EBITDA of 3.4x based on below consensus forecasts. The group has >£100m of freehold and long leasehold assets on the balance sheet providing strong asset backing. This is supported by progressive dividend yield in approaching 5%, and we also anticipate FCF generation of c£10m per annum from 2019 following significant capital expenditure undertaken in recent years, which also looks attractive to us in the context of the current share price.
