Supply constraints drive Vertu onwards

Vertu Motors’ (VTU) revenue soared as the car dealer benefited from higher prices due to the global supply chain issues hitting vehicle production. Investors will also be pleased with the reinstatement of the final dividend and a gross margin of 12 per cent, up 110 basis points from the pre-pandemic posting.

The average selling price for used retail vehicles (the company’s main revenue driver with 44 per cent of total sales) rose by 19 per cent to £17,376 in the year as semiconductor shortages continued. The Society of Motor Manufacturers and Traders’ latest car registration data underlines supply chain travails well. April year-to-date diesel registrations were down by 51 per cent and petrol by 17 per cent. Electric vehicles (EVs) and plug-in registrations “are the one positive amongst the gloom”, as LeaseLoco’s chief executive John Wilmot recently noted, with battery EV registrations up by 88 per cent.

Vertu is taking advantage of the wider EV trend. Electric and hybrid like-for-like sales were up by over 170 per cent. The company gained the MG franchise in the year, with three outlets operating and two more planned – unsurprisingly management is very keen on MG’s EV offering).

But the impact of the cost of living crisis on the outlook remains to be seen. Chief executive Robert Forrester noted that used car prices have fallen over the last three months by around 2 per cent a month – this should provide some relief to consumers and help maintain demand.  

House broker Zeus Capital has the shares trading at only six times their 2023 earnings forecast and argues that Vertu is undervalued – with the share buyback programme continuing and a robust net tangible assets position, we don’t think this is too wild a suggestion. Buy.  

Last IC View: Buy, 60p, 13 Oct 2021