Vertu Motors Plc (LON:VTU) is the topic of conversation when Zeus Capital’s Head of Research Mike Allen caught up with DirectorsTalk for an exclusive interview
Q1: Mike, Vertu Motors issued interim results for year-ended 31st August, what do you think of the results?
A1: The results were good considering the market backdrop so they delivered growth of between 3%-7% on most of the headline metrics such as revenue, operating profit and PBT. They were 5% ahead of our earnings forecast as well and the dividend was in line with our expectations and up 10% year-on-year as they maintain their progressive policy.
Q2: What were the key performance drivers?
A2: I think during the period, the market had definitely got softer so new cars were down, used cars were also down as well in terms of year-on-year margin profits, after-sales was ahead and fleet and commercial was ahead as well. I think management took a lot of action during the period, particularly on the cost side of the business, I think that helped deliver the performance that they delivered and interest costs were also lower as well. So, it was a mixture of strong operational performance in a softer market backdrop.
Q3: With that in mind then, what are your throughs on the valuation for Vertu Motors?
A3: I think in terms of the valuation, it still looks compelling, it’s on a PE of around 7 times, EBITDA of 4 times and a growing dividend yield of 3% as well. The balance sheet is extremely healthy so a net cash position but the balance sheet is very healthy as well, very asset-rich so freeholds and long-leasehold properties amount to £175 million which is quite close to the current market cap. Minimal pension issues and they’re very conservative about how they account for all aspects of new and used car stocking as well.
So, I think the business is in good shape for what we believe to be softer market conditions.
