Vertu Motors Plc (LON:VTU) has delivered a robust AGM statement essentially confirming it continues to trade in line with expectations. There is good evidence of ongoing market share gains being made, and the performance in used vehicles was the key positive highlight. We are maintaining our earnings forecasts at this juncture and continue to believe Vertu remains well positioned to deliver significant medium-term shareholder value.
AGM trading update: Vertu has delivered a robust AGM trading update, indicating that it continues to trade in line with expectations. The Group has demonstrated continued market share gains across most areas of the market, while also keeping a firm grip on costs. The near-term outlook remains uncertain with supply pressures building as a result of FX uncertainty and WLTP regulation. However, the focus on capital allocation remains with further share buybacks likely and additional acquisitions are also being considered.
Key performance drivers: We view the performance in used as stellar during the period, with used retail volumes +6.0% on a LFL basis, which translates into a +13.1% LFL revenue increase vs. a static market. On the back of this, there was also a LFL increase in gross profits. Aftersales saw +6.5% growth in LFL service revenues, which indicates it continues to take market share. This is driven by continued levels of high customer retention, growth in warranty work and used vehicle preparation work. LFL gross profit was also ahead YOY. Vertu outperformed the market with LFL new vehicle volume growth of +2.1% vs. a market -4.4% during the period. Vertu outperformed the fleet market with LFL volumes -7.0% vs. a market -8.1% driven by supply pressures from the OEMs again driven by FX and WLTP. Commercial van sales were +6.9% in volume terms and on a LFL basis vs. a market -2.9%.
Forecasts: We are maintaining our earnings forecasts on the back of this update. However, we do increase our net debt assumptions to reflect the freehold acquired in Newcastle of £7.4m. We are forecasting a H1 adjusted PBT of £18.0m vs. £20.9m last year, which implies a H2 down 10.6% YOY. We believe the assumptions we have made are at the lower end of a narrowing consensus range.
Zeus Capital Investment view: We believe the long-term valuation remains compelling at Vertu trading on a 2019E P/E of 10.2x falling to 8.1x in 2020E and an EV/EBITDA of 6.2x falling to 5.0x. The FCF yield post 2019E also looks highly attractive at 8-9% with progressive dividend yielding in excess of 3% to boot. Management remain committed to driving shareholder value and we note it has acquired back >5% of the issued share capital with authorisation renewed to go up to 10%. H1 results will be announced in mid-October.
