Motorpoint could falter on increased retail credit costs

Motorpoint’s (MOTR) latest half-year figures are an exercise in qualification: record interim revenues set against a 33 per cent fall in the gross margin to 6.2 per cent, an encouraging ecommerce performance but an overall 8 per cent reduction in volumes, and an encouraging decrease in net debt since the March year-end that was accompanied by a steep increase in the group’s net financial expense.

You have a certain amount of sympathy for management given the challenges faced by the auto industry over the past few years. Beefed-up regulatory requirements and the semiconductor shortage reduced the volume of new cars sold into the marketplace during the pandemic. That combination was broadly favourable for Motorpoint given that it stimulated demand for its ‘nearly new’ vehicles which, in turn, drove prices and unit profitability. The market is no longer quite so febrile, so most profitability metrics have come up short of their interim comparators in 2021, except for retail gross profit per unit, which is up by £45 to £1,373.

Perhaps the most pleasing aspect from management’s perspective was the 80 basis point increase in the group’s share of the 0–four-year-old vehicle market, to 3.7 per cent. Increased web traffic drove ecommerce sales by 21 per cent to £351mn. Motorpoint has also widened its catchment, and it opened two new locations in “strategically significant regions”, taking the total outlet number to 19, along with a newly opened technology hub in Manchester.

The continued capture of market share is to be welcomed, and profit comparisons with 2021 interim figures aren’t necessarily that meaningful in terms of overall performance. However, we think that the group’s forward rating of 13 times consensus earnings doesn’t fully reflect the risks linked to interest rates, the hefty debt overhang and falling discretionary incomes. Sell.

Last IC View: Sell, 195p, 4 Aug 2022