The re-ratings are mainly down to the fact that both companies are firmly in earnings upgrade cycles, helped in no small part by a benign sector backdrop and the benefit of earnings enhancing acquisitions. Indeed, I outlined the positive impact on profits of Vertu Motors, the sixth-largest car dealer in the UK, when it made an earnings accretive acquisition last month of Aceparts, a well-established non-franchised online vehicle parts business (www.aceparts.com) headquartered in Sittingbourne, Kent ('In the fast lane', 2 December 2015).
Shortly after I initiated coverage on the shares at 66p ('Poised for a strong rally', 6 Sep 2015), analysts at brokerage Liberum Capital raised their EPS estimates for the 12 months to the end of February 2016 from 5.9p to 6p based on Vertu's full-year pre-tax profit increasing by 19 per cent to £26.2m, rising to EPS of 6.7p on pre-tax profit of £29.4m for the following financial year. The dividend is forecast to be hiked from 1.05p to 1.3p a share in the current financial year (February 2016 year-end), rising to 1.6p the year after. So with upgrades likely, I still reckon that Vertu's shares offer value, so much so that I have tweaked my target price range to 85p to 90p. Trading on 11.3 times forecast earnings pre-upgrades, and offering a 2.1 per cent prospective dividend yield, I continue to rate Vertu Motors' shares a buy on a bid-offer spread of 75.5p to 76p.