Marshall Motor Holdings (LON:MMH) has exceeded last year’s record H1 performance on a continuing and LFL basis, despite clear industry pressures that have been building throughout the entire period. The key outperformance was in used cars as it delivered a 37bp improvement in margins. Following an upgrade last month, we are maintaining our forecasts, but we continue to believe the shares look significantly undervalued.
- H1 results: MMH has delivered record H1 results (6 months unaudited to 30 June 2018), which were well flagged following the trading update last month. Adjusted PBT was £16.4m, which was +1.2% ahead of the previous £16.2m record performance produced last year on a LFL basis. Net cash at the period end was £0.9m and was again flagged in the trading statement last month, which compared to net debt of £101.1m last year. Net assets were £201.2m (258p per share), which is significantly underpinned by £121.1m of freehold/long leasehold property. Its RCF facility of £120m has been extended to June 2021. There was a further £10m of capital expenditure invested in the portfolio during the period totalling £75m since 2016. The H1 dividend was held.
- Key themes: The performance in used cars was the key positive with LFL used units -0.3%, but with greater focus on margins delivered a 37bp improvement in used margins to 7.2%. The key behind this was achieved by robust operating controls. New retail units were -5.9% on a LFL basis, while fleet was -14.5% producing a total LFL decline of -9.3% (-3.5% excluding impact of tactical exit of low margin business). Gross margins were -40bps to 7.0% during the period, which was a result of more challenging and competitive conditions in this segment of the market. Aftersales continues to grow well, with LFL revenues +3.2%. Margins were -37bps to 46.1% during the period and was impacted by an increased mix in lower margin parts revenue, reduced internal PDI (pre-delivery inspection) work following lower new car sales and reduced levels of warranty work with a number of brands.
- Forecasts: We are leaving our forecasts unchanged, having put through a 3-5% (2018-2020E) EPS upgrade last month following the group’s trading update.
- Zeus Capital Investment view: The shares are trading at a clear P/E and EV/EBITDA discount to the sector UK dealer average in excess of 20% on both measures. The group has >£100m of freehold and long leasehold assets on the balance sheet providing strong asset backing. This is supported by our valuation methodology which implies a value of 236p per share, which would imply a P/E of just 10x 2019E EPS and therefore undemanding in our view, with a current progressive dividend yield in excess of 4%.
