Motorpoint Group Plc (LON:MOTR) has released a trading update this morning confirming a solid H1 performance with over 18% revenue growth. While we recognise there is an element of consumer uncertainty, given the confident tone of the update, we are updating our forecast assumptions for FY18E to reflect the strong H1 performance and now expect adj. PBT for the full year of £20.3m. While we continue to favour the dealers at this juncture offering superior asset backing on discounted valuations relative to Motorpoint; we see potential for the supply issues evident in yesterday’s SMMT data to support residual values going forward which should support profitability in the used car market.
Trading update – Motorpoint have confirmed this morning trading in H1 has been solid with revenue growth of 18% expected in the half year results. The group note a more normalized margin performance in the first half compared to the previous year, and encouraging stock levels going into the second half.
Key themes – The company expect to report 18% revenue growth in its interim results with good growth from existing mature sites and from newly opened locations. Two sites, Castleford and Oldbury, reached their first anniversary in the period and are both delivering an encouraging performance. The company opened their 12th site in Sheffield in April and note encouraging early trading.
Forecasts –We have upgraded our forecasts given the groups positive performance in H1 and confidence in the full year performance. We increase our revenue expectation by 4.2% with adjusted PBT forecasts raised 13.4%. This gives an implied H2 PBT of £9.8m, which is marginally below the £10.5m we expect for H1 as costs from new sites start to come through in the second half of the year and could therefore still prove conservative. We allow this growth to flow through the forecast period and now expect 2019E adj. PBT of £23.5m representing an 8.8% increase on our previous forecast.
Investment view – Motorpoint Group Plc currently trades on a 2018 P/E of 8.5x and an EV/EBIT of 5.6x, which remains at a premium to the dealers. We see potential for the supply reduction evident in yesterday’s SMMT data to support residual values going forward which should support profitability in the used car market. While we continue to favour the dealers at this juncture offering superior asset backing on discounted valuations relative to Motorpoint; we see potential for earnings upside in the used car market as residuals harden.
