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Vertu Motors – all rather positive but the outlook remains cautious
Posted 01/09/10
The UK’s 8th largest motor retailer issued a positive trading update ahead of its half year for the six month period ending 31st August 2010.
Vertu was launched five years ago by former senior managers from Reg Vardy and is smaller than its main UK focused rivals but growing rapidly, largley through acquisitions but also organic growth.
The Group’s private new car sales volumes rose in the five months to July 2010 by 6.7% on a like for like basis. Given differing reporting metrics, comparatives and strategies, it is difficult to make a direct comparison with other motor retailers.
Volumes of used cars sold by the Group increased 5.2% for the same period due to the ending of the scrappage programme and an increase in the supply of used cars to the market. Overall, the Group increased used car volumes in the period by 24.6% due to acquisitions. The Group currently operates 63 franchised sales outlets, 4 non-franchised sales operations and 2 stand alone service operations from 58 locations.
Fleet and commercial new vehicle sales volumes fell on a like for like basis by 7.1% in the five months to July 2010 due to the Group undertaking lower volumes of low margin car fleet business. As a consequence overall margins have improved year-on-year.
Its Iveco business continues to make good progress in achieving profitability in the short term.
Service and bodyshop revenues rose on a like for like basis by 2.4% and 2.1% respectively and profitability also increased in these areas due to revenue growth and cost control. The Group has seen a very strong performance from the key area of parts sales with revenue, margins and profitability all increasing.
Acquisitions undertaken last year have contributed positively to the Group’s first half performance and increased profit contribution from these businesses, together with the Group’s core operations mean pre-exceptional profit is expected to be materially ahead of last year in the six months period to 31st August 2010.
In the current financial year eight further sales outlets were acquired and the process of bringing these dealerships up to group performance levels takes 3-4yrs
The Group is in a strong position to undertake further consolidation activity with its net cash position and strong freehold backed balance sheet.
Management expects performance in the full financial year to be in line with market expectations (Year ending 28th Feb 2011 consensus estimates c2.55p per share). However the macro-economic outlook continues to look rather fragile and management remains cautious.
The end of the Government’s scrappage scheme decreased private new car sales, in particular effecting franchise outlets that originally benefitted from the government scheme. In comparison, Vertu itself did not benefit overtly from the stimulus.
Management believes used car margins have softened in more recent months with industry valuation guides indicating monthly falls of approximately 4% since May on cars less than 4 years old. Prior year comparatives of values and margins were at a high point reflecting constraints in the supply of used cars and as a consequence overall used car profitability is, as expected, behind last year’s levels during the period.
Pendragon (PDG: LSE) have strong growth in used cars but at the expense of margin, with a longer term strategy to gain market share. The new car market has surprised on the upside in H1 and the used car market, after a difficult January, has been a little disappointing, although supply constraints should keep pricing relatively high in H2.
Similarly to Vertu, Cambria Automobiles (CAMB:LSE) full year results are slightly ahead of the market expectations; we might comment later on this one.
This entry was posted 1 year, 5 months ago and was filed under Vertu Motors.
