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Vertu faces regulatory uncertainty

The motor dealer continues to impress on the operating front, but external events cast a pall
May 10, 2017

Vertu Motors (VTU) has published record full-year profits at a time when motor dealers are faced with an FCA investigation into car financing and the prospect of regulatory strictures designed to get diesel vehicles off the road. An 18 per cent rise in operating profit to £32.1m suggests these issues have had little impact to date. But complacency is not an option, even though further government intervention, particularly in relation to toxicity charges or diesel scrappage schemes, is unlikely this side of the general election.

IC TIP: Hold at 45p

Used car and aftermarket sales underpinned the lion's share of profit, driven by volume growth and stable margins. The former segment stands to benefit from an exclusive five-year re-marketing agreement, signed post period-end, with BCA Marketplace (BCA), which will see cars from Vertu sold at BCA centres nationwide and also available to BCA Live Online buyers.

Management is encouraged by new car retail, although the general outlook for this market is far from certain. The signs are that we're entering the down-leg of the consumer credit cycle, borne out by faltering rates of new vehicle registrations. However, management pointed to an improving profit contribution on lower volumes as proof that improved cost discipline and scale benefits are working,

House broker Zeus Capital gives adjusted pre-tax profit of £31.5m for the February 2018 year-end, leading to EPS of 6.3p (from £31.5m and 6.5p in FY2017).

VERTU MOTORS (VTU)
ORD PRICE:45pMARKET VALUE:£179m
TOUCH:45-45.3p12-MONTH HIGH:62pLOW: 38p
DIVIDEND YIELD:3.1%PE RATIO:7
NET ASSET VALUE:62p*NET CASH:£21m

Year to 28 FebTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20131.264.41.70.7
20141.6815.84.20.8
20152.0721.04.91.1
20162.4226.06.11.3
20172.8229.86.11.4
% change+16+15+1+8

Ex-div: 29 Jun

Payment: 31 Jul

*Includes intangible assets of £96.1m, or 24p a share