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Vertu doubts keep shares flat despite solid results

Motor retailers are trying their best to push back against market jitters
October 12, 2016

It's a tricky time for car retailers, particularly Vertu Motors (VTU), which has historically been a strong performer in the sector. Despite reporting an impressive set of interim figures, a 4.2 per cent drop in like-for-like new car volumes has put the market on edge. That's because a drop-off in demand for new vehicles could preface a contraction in the UK car market. But chief executive Robert Forrester insists low interest rates and high employment justify the group's forecasts this year, evidenced by the all-important plate change month of September, where Vertu's profits grew ahead of prior year levels on a like-for-like basis.

IC TIP: Hold at 47p

But continued underperformance in Vertu's share price suggests investors have taken predictions of a decline in the new car market in 2017 from the Society of Motor Manufacturers & Traders (SMMT) to heart. It doesn't seem to matter that Vertu generates 72 per cent of its gross profits from used cars and aftersales. There is some analyst concern regarding Vertu's limited levels of free cash flow as a result of an intense capital expenditure programme. During the first six months, cash generated from operations fell to £26.4m from £37.6m this time last year.

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