Marshall Motor Holding — Leasing disposal augments strategic resource

Marshall Motor Holdings (LN: MMH)

Last close As at 27/03/2024

394.00

0.00 (0.00%)

Market capitalisation

308m

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Research: Industrials

Marshall Motor Holding — Leasing disposal augments strategic resource

Marshall Motor Holdings (MMH) has announced that it will sell its vehicle leasing activity to Bank of Ireland for £42.5m. The net proceeds equate to 33% of the market cap and will leave the company ungeared. The strengthened balance sheet provides increased financial resource with which to pursue its growth strategy in vehicle retail, both organic and acquired, which should reverse the initial dilution. On completion, the net asset value should rise by nearly 25% to around 254p per share, further underpinning the shares.

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Industrials

Marshall Motor Holdings

Leasing disposal augments strategic resource

Disposal

Automotive retail

21 September 2017

Price

160p

Market cap

£124m

Adjusted net debt (£m) at 30 June 2017

35.1

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

8.5

11.9

3.9

Rel (local)

9.2

14.6

(3.1)

52-week high/low

178.5p

133.5p

Business description

Marshall Motor is the seventh largest UK motor retailer, operating 104 franchises spread across 24 brands at 90 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.

Next events

Pre-close statement

January 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

Marshall Motor Holdings (MMH) has announced that it will sell its vehicle leasing activity to Bank of Ireland for £42.5m. The net proceeds equate to 33% of the market cap and will leave the company ungeared. The strengthened balance sheet provides increased financial resource with which to pursue its growth strategy in vehicle retail, both organic and acquired, which should reverse the initial dilution. On completion, the net asset value should rise by nearly 25% to around 254p per share, further underpinning the shares.

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

10.1

1.9

12/16

1,899.4

25.4

26.2

5.50

6.1

3.4

12/17e

2,271.1

28.3

28.6

6.45

5.6

4.0

12/18e

2,296.5

28.9

29.2

6.90

5.5

4.3

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

Marshall Leasing disposal

MMH has announced that it is to sell the Leasing Division to Bank of Ireland for £42.5m, representing a substantial gain over book value. Completion is subject to regulatory clearance and is expected before the year end. The leasing business should benefit from its transfer to a financially oriented parent, and lacked scale under MMH’s tenure. For MMH the disposal will reduce risk and focus the business on the strategic development of the vehicle retail distribution operations in the UK.

Strategic and financial implications

The disposal represents an exit P/E of 12.1x (12m trailing), and an EV/EBITDA multiple of c 8.0x. With net assets expected to be minimal at completion following settlement of intra group obligations MMH should book a profit of just under £40m after allowing for deal costs. It is important to recognise that as the deal leaves MMH with net cash (pro forma £4.6m at the 30 June 2017 vs reported net debt of £101.1m), we fully expect the company to utilise the resource to invest in additional assets for the continuing retail businesses when suitable opportunities arise. As the division was expected to contribute approximately £5.3m to underlying FY18 EBIT of £37.7m, there is initial EPS dilution of around 17% in FY18. The disposal also considerably improves the clarity of the company, without a need to explain how the leasing debt and operations work financially, and removes the residual value risk of the business.

Valuation: Reinvestment should outweigh dilution

We have not adjusted out forecasts to reflect the disposal, but will do so when the transaction completes. The earnings dilution caused by the disposal will temporarily align the P/E rating with MMH’s peers until the company starts to reinvest the proceeds and generate increasing returns. Nevertheless a relatively high dividend yield, the property supported asset base and the enhanced ability to pursue its growth strategy should provide support in the meantime.

Exhibit 1: 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

2,296.5

Cost of Sales

(1,087.5)

(1,678.9)

(2,003.1)

(2,025.5)

Gross Profit

145.3

220.5

268.0

271.0

EBITDA

 

 

22.8

38.7

44.8

44.9

Operating Profit (before amort. and except).

 

 

18.7

32.3

37.1

37.7

Intangible Amortisation

(0.2)

(0.3)

(0.4)

(0.4)

Exceptionals

(0.5)

(3.2)

0.0

0.0

Other

0.0

0.0

0.0

0.0

Operating Profit

18.0

28.8

36.7

37.3

Net Interest

(2.9)

(6.9)

(8.9)

(8.8)

Profit Before Tax (norm)

 

 

15.8

25.4

28.3

28.9

Profit Before Tax (FRS 3)

 

 

15.1

21.9

27.9

28.5

Tax

(3.6)

(4.4)

(6.2)

(6.3)

Profit After Tax (norm)

9.4

20.2

22.0

22.5

Profit After Tax (FRS 3)

11.5

17.5

21.7

22.1

Average Number of Shares Outstanding (m)

59.4

77.2

77.2

77.2

EPS - normalised (p)

 

 

15.8

26.2

28.6

29.2

EPS - normalised and fully diluted (p)

 

 

15.3

25.5

27.9

28.4

EPS - (IFRS) (p)

 

 

19.3

22.6

28.1

28.6

Dividend per share (p)

3.0

5.5

6.5

6.9

Gross Margin (%)

11.8

11.6

11.8

11.8

EBITDA Margin (%)

1.8

2.0

2.0

2.0

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

1.5

1.7

1.6

1.6

BALANCE SHEET

Fixed Assets

 

 

150.0

326.4

353.7

380.3

Intangible Assets

40.8

122.0

122.2

122.2

Tangible Assets

109.2

204.4

231.6

258.1

Investments

0.0

0.0

0.0

0.0

Current Assets

 

 

307.5

475.2

483.1

476.1

Stocks

240.6

380.0

386.1

382.6

Debtors

28.9

71.0

68.1

64.3

Cash

24.1

0.1

0.1

0.1

Other

13.9

24.1

28.8

29.1

Current Liabilities

 

 

(290.1)

(584.9)

(525.0)

(535.5)

Creditors

(263.4)

(507.2)

(525.0)

(535.5)

Short term borrowings

(26.7)

(77.7)

0.0

0.0

Long Term Liabilities

 

 

(37.6)

(71.1)

(149.1)

(141.1)

Long term borrowings

(24.7)

(41.4)

(119.5)

(111.5)

Other long term liabilities

(12.9)

(29.7)

(29.7)

(29.6)

Net Assets

 

 

129.9

145.7

162.7

179.9

CASH FLOW

Operating Cash Flow

 

 

29.6

98.9

65.7

75.4

Net Interest

(1.1)

(1.4)

(2.9)

(3.8)

Tax

(3.0)

(17.3)

(6.2)

(6.3)

Capex

(39.6)

(61.9)

(66.4)

(65.1)

Acquisitions/disposals

(21.5)

(91.4)

1.0

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

13.0

Net Cash Flow

24.5

(91.8)

(0.4)

8.0

Opening net debt/(cash)

 

 

51.7

27.2

119.0

119.4

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

119.4

111.4

Source: Marshall Motor Holdings accounts, Edison Investment Research

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 Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. 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

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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 Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. 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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