- Acquisitions make their mark
- Used EV market a cause for concern
At its February year-end, Vertu Motors (VTU) eclipsed the £4bn revenue mark for the first time, as higher vehicle prices and the impact of acquisitions made their mark. These factors are still in evidence, not least of which is the Helston Garages Group integration, which enabled the automotive retailer to increase its top line by a fifth in its half-year results, although anyone who has kept abreast of the auto market will know that industry trends are far from settled.
Vertu believes the increase in reported profits reflects mounting scale benefits, along with the positive influence of increased digitalisation, cost efficiencies, and targeted capital allocation. Maybe so, but the benefits of these measures are not immediately obvious in terms of the gross margin, where only Vertu’s fleet & commercial arm delivered an improvement — a modest 0.4 percentage points. Admittedly, that may appear a little churlish, given that gross profits for both new vehicles and fleet & commercial were up by a third, while aftersales receipts were also on the rise.
Overall performance was supported by an increase in used vehicle gross profit, yet supply remains constrained due to “three consecutive years of low new vehicle registrations in the UK”, a situation that management believes will persist “for a further number of years”. The supply shortfall is particularly acute in ‘nearly-new’ vehicles, leading to a higher proportion of older vehicles on dealership forecourts. That translates into higher costs linked to mechanical and cosmetic repair work, although demand for used vehicles continues to be supported by the impact of the cost of living crisis and rising interest rates.
It's worth noting that prices for used electric vehicles (EVs) have tanked over the past year, a consequence of supply outstripping retail demand due to high asking prices in the early part of the financial year, resulting in a 44 per cent negative correction. This corner of the market still only represents 4.7 per cent of Vertu’s used car sales, and management believes that supply and demand are beginning to align, but you’re left with the suspicion that this won’t be the last issue which undermines the trade in used EVs. It is quite conceivable that emerging problems linked to insurance and repair/write-off costs at this end of the auto market will have a material impact on volumes and prices as adoption increases – we shall see.
We are witnessing an overall improvement in trading conditions, although the industry remains in a state of flux. Nonetheless, the shares look better value than industry peers, changing hands at a lowly seven times consensus earnings and at a 40 per cent discount to the target price. Buy.
Last IC View: Buy, 60p, 10 May 2023
| VERTU MOTORS (VTU) | ||||
| ORD PRICE: | 72p | MARKET VALUE: | £244mn | |
| TOUCH: | 71-72p | 12-MONTH HIGH: | 78p | LOW: 39p |
| DIVIDEND YIELD: | 3.2% | PE RATIO: | 9 | |
| NET ASSET VALUE: | 104p* | NET DEBT: | 49% | |
| Half-year to 31 Aug | Turnover (£bn) | Pre-tax profit (£mn) | Earnings per share (p) | Dividend per share (p) |
| 2022 | 2.00 | 26.9 | 6.19 | 0.70 |
| 2023 | 2.42 | 30.2 | 6.58 | 0.85 |
| % change | +21 | +12 | +6 | +21 |
| Ex-div: | 14 Dec | |||
| Payment: | 19 Jan | |||
| *Includes intangible assets of £130mn, or 38p a share | ||||
