Cambria Automobiles PLC (LON:CAMB) is the topic of conversation when Zeus Capital’s Head of Research Mike Allen caught up with DirectorsTalk for an exclusive interview.
Q1: Cambria Automobiles released its preliminary results for the year to the 31st August 2018, what are your thoughts on the results?
A1: The results were good, they were down year-on-year reflecting a difficult year in the automotive market which has been well publicised, however, the results did come in ahead of our expectations.
Adjusted EBIT was 7% ahead of our forecast and adjusted EPS was 5% ahead of our forecast, the dividend was in line with expectations but the cash generation, cash conversion was running in excess of 100% and despite spending just short of £24 million on capex this year, net debt came in at £5.5 million which was better than our forecast of £7.9 million after a busy year.
Q2: What are the key drivers for the company?
A2: Bear in mind, the market wasn’t easy this year and also they had a lot of site development going on and potential disruption there.
In terms of the key drivers, they continue to show organic growth in this used vehicles and aftersales business, good control of the cost base also came through as well but there was a drop in the new car profitable as predicted, driven by the market.
Q3: You mentioned at the beginning that the results came in ahead of your expectations, have the results affected your forecasts in anyway?
A3: No, they didn’t actually and I think we have seen downgrades elsewhere in the sector, but management were happy with our forecast going into the new financial year. They do remain cautious on the outlook, but I think operationally the business is in very good shape, I think it’s a good outcome at the moment that they’re happy with forecasts.
Q4: So, what’s your view on the current valuation for Cambria Automobiles?
A4: We think, as we see with the rest of the sector, the valuation is very low at the moment so stocks trading on just short of 7 times earnings and an EV/EBITDA of below 5 times as well.
If you look at the current market cap of just above £50 million, we think the value of the property assets that they’ve invested in will be worth in excess of £80 million so there’s a clear anomaly there.
If you look at the free cash generation of this business as well, we think the expectations that we’ve got in our forecast, we would expect this business to generate between £8 million – £9 million of free cash flow from next year which implies a free cash flow yield of about 15-16%. I think that’s highly attractive given the investment that’s gone into the group as well.
So, the business offers good value, we think, on a number of different fronts.