Marshall Motor Holdings PLC Annual results for the year ended 31 December 2017

Marshall Motor Holdings plc (LON:MMH), one of the UK’s leading automotive retail groups, announced today its results for the year ended 31 December 2017.

Financial summary

Highlights

· Good like-for-like** revenue growth of 3.5% with all revenue streams showing positive growth.

· Like-for-like new revenue +1.0%, used +7.0%, aftersales +2.3%.

· New car retail unit sales up 12.3% (like-for-like down 2.6% versus UK new retail market*** down 6.8%).

· Used car unit sales up 17.1% (like-for-like up 5.2% versus UK used market*** down 1.1%).

· Strong performance from aftersales, revenues up 20.0% (like-for-like up 2.3%) and further margin improvements.

· Strategic disposal of Marshall Leasing for a gross consideration of £42.5m before costs and expenses.

· Management action drives a material reduction in net debt at 31 December 2017 £2.2m (2016: £119.0m).

· Balance sheet further strengthened with net assets per share of £2.47 (2016: £1.88). Freehold / Long leasehold property £116.3m. £120m committed revolving credit facility undrawn at 31 December 2017.

· Full year dividend up 16.4% at 6.4p per share (2016: 5.5p).

Daksh Gupta, Marshall Motor Holdings plc Group Chief Executive, said: “Despite the more challenging market backdrop, the Board is pleased to announce another record financial performance which was ahead of our previously upgraded expectations. During 2017 we took a number steps, including the strategic disposal of Marshall Leasing, to prepare the Group for the future. We are now focused exclusively on our motor retail business and with a significantly strengthened balance sheet remain ideally positioned to exploit future opportunities.

“The Board notes the latest Society of Motor Manufacturers and Traders (‘SMMT’) UK new car market forecasts for a decline of 5.6% in 2018. As a consequence the Board therefore remains cautious about the UK car market in 2018 as it returns to a more normalised level. Our trading performance in the current financial year to date is in line with our expectations and our outlook for the full year remains unchanged.

“I would like to take this opportunity on behalf of the Board to thank our entire team and our brand partners for their continued support.”

 

*underlying profit before tax is presented excluding non-underlying items as set out in Note 4.

**like-for-like businesses are defined as those which traded under the Group’s ownership throughout both the entire year under review and the corresponding comparative year.

***as reported by The Society of Motor Manufacturers and Traders.

Peter Johnson, Chairman of Marshall Motor Holdings has notified the Board that he will retire from MMH during this summer. Peter has been Chairman of MMH through and since its IPO in April 2015. In that time MMH has been transformed through the acquisition of Ridgeway and the disposal of Marshall Leasing and both revenue and profit before tax have grown by 84%.

The Board of MMH has begun a process to identify and appoint his successor.

Peter Johnson, Chairman, said “I have greatly enjoyed being part of a team that has built a business so well positioned for the years ahead. As l approach my 50th year in the Automotive Industry l feel the time is right to pass on the baton. I am confident this Board and talented Executive Team will take the business on to even greater successes.”

Daksh Gupta, Chief Executive, said “On behalf of the Board and everyone at MMH, I would like to thank Peter for his significant contribution to the Group. I would also like to personally thank him for his invaluable support and counsel over the many years we have worked together. We wish him all the very best for the future.”

Alan Ferguson, Senior Independent Director, said “Peter has been an exemplary Chairman and has provided great leadership to the Board and the Company. His wisdom, integrity and deep knowledge of the motor trade will be greatly missed. He will leave with all our best wishes.”

Zeus Capital said: The company has delivered strong growth in what remains a challenging conditions, showing good outperformance against the market. We are maintaining our forecasts, with our estimates below consensus ahead of what we anticipate to be a difficult Q1 and March trading period. That said, we do believe the shares offer good long-term value at this juncture and point towards a prospective P/E of less than 8x and EV/EBITDA below 4x, which remains at a discount to the sector. In addition, MMH has a strong balance sheet and a prospective dividend yield in excess of 4%.

Final results: MMH has delivered final results, which are marginally ahead of our forecasts at the adjusted PBT level and +14.4% YOY. Adjusted EPS was +17.6% and 8.8% ahead of our forecast with the effective tax rate coming in at 18.1% vs. 24% assumed in our forecasts. The total dividend for the year at 6.4p was bang in line with our forecast and +16.4% YOY. There was an exceptional profit of £24.1m in these numbers. Net debt at £2.2m was also better than our forecast of £4.9m and considerably lower than the £119.0m position last year, which included both core and leasing debt. Net assets per share stand at 247p per share, with freehold and long leasehold assets at £116.3m.

Key themes: New unit sales were +12.3% as they benefited from the Ridgeway acquisition. LFL new retail units were -2.6% vs. the market -6.8%. LFL fleet unit sales were -13.9% vs. the market -4.7% as it tactically decided to exit low margin business. Used unit sales were +17.1% and +5.2% on a LFL basis, which we believe is very creditable vs. a market -1.1% during the year according to the SMMT. A focus on improving its online presence was key in driving this performance. Aftersales revenues were +20.0% or +2.3% on a LFL basis. Gross margins in this segment improved by 130bps to 46.9% suggesting it continues to perform well.

Forecasts: While the current economic environment remains uncertain, we believe the Group is now better placed to cope with this given its more focused portfolio and strong balance sheet. Current trading is said to be in line with expectations ahead of the key trading period of March, and we are maintaining our below consensus headline forecasts as a result

Valuation: We believe the valuation remains undemanding, trading on a 2018E P/E of 7.5x and an EV/EBITDA of 3.8x, which remains a modest discount to the sector also on close to trough multiples. With a strong balance and significant asset backing coupled with a dividend yield in excess of 4%, we believe MMH looks undervalued particularly within the context of the execution delivered since IPO in 2015.