Between supply-side regulation challenges, rising costs and declining new car registrations, the automotive retailers are in an unenviable position, which looks unlikely to ease up in the short term. However, management at Vertu Motors (VTU) takes a somewhat counter-intuitive line on the opportunities such a market presents, citing a likely shake-out of smaller, under-capitalised dealers, which should open-up consolidation opportunities for the UK's fifth-largest auto retailer (by revenue).
It also thinks that structural changes under way in the UK automotive market, specifically the gradual shift towards electric and hybrid motoring, will present enhanced opportunities for Vertu's aftersales operations, which account for over 40 per cent of gross profit. Again, management posits that scale benefits – the ability to fund the necessary kit to facilitate the transition – will benefit larger players at the expense of smaller forecourt operators.
Rising operating costs outpaced gross profit growth in the year, leading earnings to drop. However, free cash flow almost doubled thanks to better control of stock, coupled with an £18.9m reduction in working capital. Cash flow is expected to improve further next year as the group's three-year capital expenditure programme ends.
House Broker Zeus Capital trimmed its forecasts, and now expects adjusted pre-tax profit of £25.7m for the February 2020 year-end, giving EPS of 5.4p up from £23.7m and 5p in FY2019.
| VERTU MOTORS (VTU) | ||||
| ORD PRICE: | 36p | MARKET VALUE: | £134m | |
| TOUCH: | 35.2-36p | 12-MONTH HIGH: | 53p | LOW: 31p |
| DIVIDEND YIELD: | 4.5% | PE RATIO: | 7 | |
| NET ASSET VALUE: | 73p* | NET DEBT: | £0.3m | |
| Year to 28 Feb | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2015 | 2.07 | 21.0 | 4.9 | 1.1 |
| 2016 | 2.42 | 26.0 | 6.1 | 1.3 |
| 2017 | 2.82 | 29.8 | 6.1 | 1.4 |
| 2018 | 2.80 | 30.4 | 6.3 | 1.5 |
| 2019 | 2.98 | 25.3 | 5.5 | 1.6 |
| % change | +7 | -17 | -14 | +7 |
| Ex-div: | 27 Jun | |||
| Payment: | 29 Jul | |||
| *Includes intangible assets of £115m, or 30p a share | ||||
