Marshall Motor Holdings — Resetting numbers following leasing sale

Marshall Motor Holdings (LN: MMH)

Last close As at 27/03/2024

394.00

0.00 (0.00%)

Market capitalisation

308m

More on this equity

Research: Industrials

Marshall Motor Holdings — Resetting numbers following leasing sale

Following the recent announcement of dealer portfolio adjustments, and the completion of the strategic disposal of Marshall Leasing, we adjust our forecasts to reflect these events. As previously commented, the leasing deal eliminates MMH’s gross debt and lifts the NAV to £199.5m or 258p per share. It provides financial flexibility to implement the investment programme, including M&A to help mitigate the initial dilution that is seen in FY18e. The dealership closures eliminate losses and reduce turnover by around £40m. Overall, MMH is well positioned as it enters FY18 where market conditions are expected to remain unhelpful.

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Industrials

Marshall Motor Holdings

Resetting numbers following leasing sale

Completion of disposal

Automotive retailers

27 November 2017

Price

156.5p

Market cap

£121m

Pro forma net cash (£m)at 30 June 2017

£4.6m

Shares in issue

77.4m

Free float

34.9%

Code

MMH

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

3.0

(0.3)

11.0

Rel (local)

4.4

(0.6)

1.3

52-week high/low

178.5p

133.5p

Business description

Marshall Motor is the seventh largest UK motor retailer, operating 98 franchises spread across 23 brands at 84 locations. It is one of six UK dealership groups that represent each of the top five volume and premium brands. The group has a strong presence in eastern and southern England. h of the top five volume and premium brands. The group has a strong presence in eastern and southern England.

Next events

Preliminary results

March 2018

Analysts

Andy Chambers

+44 (0)20 3681 2525

Annabel Hewson

+44 (0)20 3077 5700

Marshall Motor Holdings is a research client of Edison Investment Research Limited

Following the recent announcement of dealer portfolio adjustments, and the completion of the strategic disposal of Marshall Leasing, we adjust our forecasts to reflect these events. As previously commented, the leasing deal eliminates MMH’s gross debt and lifts the NAV to £199.5m or 258p per share. It provides financial flexibility to implement the investment programme, including M&A to help mitigate the initial dilution that is seen in FY18e. The dealership closures eliminate losses and reduce turnover by around £40m. Overall, MMH is well positioned as it enters FY18 where market conditions are expected to remain unhelpful.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/15

1,232.8

15.8

15.8

2.98

9.9

1.9

12/16

1,899.4

25.4

26.2

5.50

6.0

3.5

12/17e

2,271.1

28.3

28.6

6.45

5.5

4.1

12/18e

2,219.0

24.5

24.8

6.90

6.3

4.4

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles and exceptional items.

Balance sheet ungeared entering 2018

Our FY17 earnings estimates remain unchanged as a result of the disposal of Marshall Leasing (MLL) and the recently announced portfolio closures. However, the balance sheet should end the year debt free as both the asset backed loans of MLL and the £42.5m cash proceeds from the deal are received. Until this strengthened financial position can be put to work for shareholders through both organic investment and new M&A opportunities, the disaggregation of MLL from the financial statements is initially earnings dilutive from FY18. Our FY18e EPS drops 15% to 24.8p from 29.2p. Revenues forecast are 3.4% or £77.6m lower at £2,219m as the MLL sales and the dealership closures are both effectively deconsolidated with similar impacts. Our FY18 Retail operating margin is modestly increased as the dealerships being closed were loss-making. MMH is also now more focused as Retail is the only operating division. We now forecast FY18e closing net cash of £10m, and expect dividend progression to be as previously forecast.

Underpinning from enhanced NAV

The deal significantly enhances the NAV and eliminates residual value risk that resides in MLL. NAV per share is now £199.5m, up 23% as a result of the deal. Backed by a strong portfolio of freehold and long leasehold property this equates to 258p per share. The SMMT forecast now indicates a further fall in new car sales in 2018, similar to the current year (c 5%). Trading progression in such conditions is always likely to remain tricky, but car manufacturers do appear to be responding favourably. MMH is positioned to take any value creating opportunities that arise.

Valuation: Still a discount to peers

Despite the unrelieved EPS dilution in FY18e MMH is still trading on a P/E of just 6.3x, a 13% discount to peers. Our fair value is now 246p up from 219p prior to the deal as the cash returns exceed the DCF for leasing.

Estimates revisions

Our earnings revisions following the disposal of MLL and allowing for the closure of six locations announced last week are as follows.

Exhibit 1: Marshall Motor Holding estimate revisions

Year to December (£m)

2017E

2017E

 

2018E

2018E

 

 

Prior

New

% change

Prior

New

% change

New Car

1,199.6

1,199.6

0.0%

1,199.6

1,154.6

-3.0%

Aftersales

855,2

855.2

0.0%

243.7

238.7

-2.0%

Used Car

234.4

234.4

0.0%

872.3

872.3

0.0%

Intra group

(55.6)

(55.6)

0.0%

(57.0)

(57.0)

0.0%

Retail sales

2,233.5

2,233.5

0.0%

2,258.6

2,218.6

-1.8%

Leasing

37.2

37.2

0.0%

37.6

0.0

-100.0%

Unallocated

0.4

0.4

0.0%

0.4

0.4

0.0%

Group revenues

2,271.1

2,271.1

0.0%

2,296.5

2,219.0

-3.4%

 

 

 

 

 

 

EBITDA

44.4

44.4

0.0%

44.9

39.6

-11.7%

 

 

 

 

 

 

Retail

41.4

41.4

0.0%

42.1

42.3

0.4%

Leasing

5.2

5.2

0.0%

5.3

0.0

-100.0%

Unallocated

(9.5)

(9.5)

0.0%

(9.7)

(9.7)

0.0%

Underlying operating profit

37.1

37.1

0.0%

37.7

32.6

-13.5%

 

 

 

 

 

 

Underlying PTP

28.3

28.3

0.0%

28.9

24.5

-15.1%

 

 

 

 

 

 

EPS - underlying continuing (p)

28.6

28.6

0.0%

29.2

24.8

-15.1%

DPS (p)

6.5

6.5

0.0%

6.9

6.9

0.0%

Net debt/(cash)

46.9

(7.1)

N/M

35.9

(10.2)

N/M

Source: Edison Investment Research

Exhibit 2: Financial summary

£m

2015

2016

2017e

2018e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

1,232.8

1,899.4

2,271.1

2,219.0

Cost of Sales

(1,087.5)

(1,678.9)

(2,003.1)

(1,957.1)

Gross Profit

145.3

220.5

268.0

261.8

EBITDA

 

 

22.5

38.4

44.4

39.6

Operating Profit (before amort. and except).

 

 

18.7

32.3

37.1

32.6

Intangible Amortisation

(0.2)

(0.3)

(0.4)

(0.4)

Exceptionals

(0.5)

(3.2)

35.4

0.0

Other

0.0

0.0

0.0

0.0

Operating Profit

18.0

28.8

72.1

32.2

Net Interest

(2.9)

(6.9)

(8.8)

(8.1)

Profit Before Tax (norm)

 

 

15.8

25.4

28.3

24.5

Profit Before Tax (FRS 3)

 

 

15.1

21.9

63.3

24.1

Tax

(3.6)

(4.4)

(4.9)

(5.4)

Profit After Tax (norm)

9.4

20.2

22.1

19.1

Profit After Tax (FRS 3)

11.5

17.5

58.4

18.7

Average Number of Shares Outstanding (m)

59.4

77.2

77.2

77.2

EPS - normalised (p)

 

 

15.8

26.2

28.6

24.8

EPS - normalised and fully diluted (p)

 

 

15.3

25.5

27.9

24.1

EPS - (IFRS) (p)

 

 

19.3

22.6

75.6

24.2

Dividend per share (p)

2.98

5.50

6.45

6.90

Gross Margin (%)

11.8

11.6

11.8

11.8

EBITDA Margin (%)

1.8

2.0

2.0

1.8

Operating Margin (before GW and except.) (%)

1.5

1.7

1.6

1.5

BALANCE SHEET

Fixed Assets

 

 

150.0

326.4

274.9

293.7

Intangible Assets

40.8

122.0

122.2

122.2

Tangible Assets

109.2

204.4

152.7

171.5

Investments

0.0

0.0

0.0

0.0

Current Assets

 

 

307.5

475.2

472.5

466.6

Stocks

240.6

380.0

374.7

366.1

Debtors

28.9

71.0

61.9

62.1

Cash

24.1

0.1

7.1

10.2

Other

13.9

24.1

28.8

28.2

Current Liabilities

 

 

(290.1)

(584.9)

(518.2)

(517.4)

Creditors

(263.4)

(507.2)

(518.2)

(517.4)

Short term borrowings

(26.7)

(77.7)

0.0

0.0

Long Term Liabilities

 

 

(37.6)

(71.1)

(29.7)

(29.6)

Long term borrowings

(24.7)

(41.4)

(0.0)

(0.0)

Other long term liabilities

(12.9)

(29.7)

(29.7)

(29.6)

Net Assets

 

 

129.9

145.7

199.5

213.3

CASH FLOW

Operating Cash Flow

 

 

29.6

98.9

85.2

43.1

Net Interest

(1.1)

(1.4)

(2.9)

(3.8)

Tax

(3.0)

(17.3)

(4.9)

(5.4)

Capex

(39.6)

(61.9)

(66.4)

(25.8)

Acquisitions/disposals

(21.5)

(91.4)

106.7

0.0

Financing

66.9

0.0

0.0

0.0

Dividends

(15.4)

(3.3)

(4.5)

(5.1)

Other

8.6

(15.5)

13.0

0.0

Net Cash Flow

24.5

(91.8)

126.1

3.0

Opening net debt/(cash)

 

 

51.7

27.2

119.0

(7.1)

HP finance leases initiated

0.0

0.0

0.0

0.0

Other

0.0

0.0

0.0

0.0

Closing net debt/(cash)

 

 

27.2

119.0

(7.1)

(10.2)

Source: Company reports, Edison Investment Research estimates

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Marshall Motor Holding and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investments Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Marshall Motor Holding and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investments Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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