Buy Motorpoint's need for speed

Not only is the company benefiting from being a specialist, but conditions in the used-car market remain relatively encouraging. In 2019, the used-car market hugely outperformed the new-car market, with sales down just 0.1 per cent, compared with a 7.3 per cent drop. 

In recent years, management has been investing in the construction of a new preparation centre in Peterborough, where it already has a dealership. The centre opened in the first half of the financial year, and has already led to efficiency improvements. Indeed, stock had historically accounted for a little over 10 per cent of revenues, but this fell to 8 per cent at the half-year results. This helped unlock around £10m, with first-half cash from operations up from £16.9m to £25.9m. It will also reduce reliance on stock financing, which stood at £66m at the half-year stage, included as ‘payables’ on the balance sheet. Holding less stock also reduces exposure to falling car prices if sales slow significantly – a major risk given the rapid depreciation of nearly new cars.

Selling nearly new cars is not a high-margin activity, with operating margins coming in at just 2.3 per cent last year. But Motorpoint’s ability to generate sales of over eight times the capital employed by its operations means last year’s return on capital employed (ROCE) was an impressive 20 per cent. Given the importance of turnover for returns, there is encouragement to be had from the record of strong sales growth in the years since its initial public offering in May 2016. True, sales growth in the last financial year fell below double digits for the first time since its IPO due to difficulty in the wider auto retail market, marked by political uncertainty and low consumer confidence. This continued into the first half, with a 1 per cent rise in revenue, but the group’s ability to grow and capture market share even in tough conditions provides grounds for encouragement.

Further growth will come from the group’s ongoing network expansion. It is opening a new, five-acre site in Swansea later this year, it’s 13th. Management is in discussions over several further sites, and a home delivery pilot is showing “encouraging early results”. The group has also been investing in its team, recently hiring a chief operating officer and chief technology officer to help improve overall efficiency and data usage.