Marshall Motor Holdings — Continued strong performance in Q321

Marshall Motor Holdings (LN: MMH)

Last close As at 20/04/2024

394.00

0.00 (0.00%)

Market capitalisation

308m

More on this equity

Research: Industrials

Marshall Motor Holdings — Continued strong performance in Q321

For Marshall Motor Holdings (MMH), the favourable mix of trading conditions for automotive retailers has continued through Q321 despite intensifying supply constraints as the global chip shortage disrupted production at car producers. Delivery lead times are extended, with strong margins for new cars and at unprecedented levels in the used car segment, leading to an excellent profit performance despite lower volumes. Management has again increased guidance for the current year profit to not less than £50m. While there is no certainty as to when trading conditions will normalise, we expect margins to moderate in FY22 as car supply improves. We have raised our FY21 EPS estimate by 25%, with no increase in FY22. A single-digit FY22e P/E multiple of just 9.1x does not look demanding as we expect markets to normalise and growth to resume in FY23.

Andy Chambers

Written by

Andy Chambers

Director, Industrials

Industrials

Marshall Motor Holdings

Continued strong performance in Q321

Q3 trading update

Automotive retailers

6 October 2021

Price

208p

Market cap

£163m

Adjusted net cash (£m) at 30 June 2021
(excludes £92.4m lease liabilities)

57.2

Shares in issue

78.2m

Free float

35%

Code

MMH

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(19.4)

(2.8)

66.4

Rel (local)

(17.9)

(1.6)

36.9

52-week high/low

260p

120p

Business description

Marshall Motor Holdings is the seventh largest UK motor retailer, operating 116 franchises spread across 22 brands in 29 counties. 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

FY21 results

March 2022

Analyst

Andy Chambers

+44 (0)20 3681 2525

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

For Marshall Motor Holdings (MMH), the favourable mix of trading conditions for automotive retailers has continued through Q321 despite intensifying supply constraints as the global chip shortage disrupted production at car producers. Delivery lead times are extended, with strong margins for new cars and at unprecedented levels in the used car segment, leading to an excellent profit performance despite lower volumes. Management has again increased guidance for the current year profit to not less than £50m. While there is no certainty as to when trading conditions will normalise, we expect margins to moderate in FY22 as car supply improves. We have raised our FY21 EPS estimate by 25%, with no increase in FY22. A single-digit FY22e P/E multiple of just 9.1x does not look demanding as we expect markets to normalise and growth to resume in FY23.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/19

2,276

22.1

22.9

2.85

9.1

1.4

12/20

2,154

20.9

21.1

0.00

9.9

N/A

12/21e

2,337

50.1

50.4

13.30

4.1

6.4

12/22e

2,247

22.8

22.9

8.55

9.1

4.1

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

Outperformance in new cars continues

MMH continued to outperform challenging new car markets in Q321. The new car supply constraints caused by production cuts as the global microchip shortage bites harder were reflected in UK new car registrations. These fell 34% year-on-year in September 2021 and by 31% in Q321 versus Q320, when sales benefited from the release of pent-up demand following the end of the first national lockdown. MMH like-for-like new vehicle unit sales outperformed the market by 13% in volume terms in Q321 and by almost 12% year to date (UK market still +5.9%). The company has continued to invest in its omnichannel offering, procurement processes and technology, as well as increased marketing to optimise returns.

Exceptional used car margins achieved

The scarcity of supply led to favourable pricing and margins for new cars. The situation remains even more positive in used car markets where values continued to rise sharply through Q321, increasing by an average of 12.7%. Used car values have progressively risen by an unprecedented 26.3% in the last seven months. Margin performance in both the new and used segments has more than offset lower volumes in the period. However, the longer the supply constraints persist, the more challenging trading is likely to become and as supply eases, margins may moderate further.

Valuation: Supportive yield

While the rating looks undemanding, the FY22e yield looks very supportive as the wait for a return to more normal markets continues. We expect to see multiple expansion as a return to profitable growth is anticipated from FY23.

Earnings revisions

The exceptionally positive profit performance in FY21 is a result of distorted market conditions, which have persisted even as the pandemic has become more manageable. Management has continued to capitalise on these favourable tailwinds and expects to achieve a stable Q421 performance despite increasing new car supply shortages, which are leading to an increasingly tight used car market as contract renewal decisions are deferred due to extended new car delivery lead times, many of which extend well into 2022.

As conditions should revert to normal assuming the supply chain issues are resolved, we expect more normal market conditions to reassert themselves. While underlying demand appears to be strong, the margin reversion is likely to be significant, although when and by how much remains extremely uncertain.

As a result, the strong FY21 performance, as reflected in our increased estimates below, still appears likely to be followed by a return to more normal levels of trading and profitability in FY22, although the improved cash performance in FY21 should be retained. The balance sheet thus remains well positioned to take advantage of any value-creating investment opportunities that might arise.

Exhibit 1: Marshall Motor Holdings revisions to earnings estimates

Year to December (£m)

2021e

2022e

 

Prior

New

% change

Prior

New

% change

New Car

1,008.3

1,008.3

0.0%

978.1

978.1

0.0%

Used Car

1,107.1

1,107.1

0.0%

1,045.6

1,045.6

0.0%

Aftersales

267.1

267.1

0.0%

269.7

269.7

0.0%

Intra group

(45.9)

(45.9)

0.0%

(46.5)

(46.5)

0.0%

Group revenues

2,336.5

2,336.5

0.0%

2,246.9

2,246.9

0.0%

 

 

 

 

 

 

EBITDA

70.3

80.2

14.1%

52.2

52.2

0.0%

Underlying operating profit

49.9

59.7

19.8%

32.4

32.4

0.0%

Underlying PBT

40.2

50.1

24.8%

22.8

22.8

0.0%

 

 

 

 

 

 

EPS - underlying (p)

40.3

50.4

24.8%

22.9

22.9

0.0%

DPS (p)

13.3

13.3

0.0%

8.6

8.6

0.0%

Adjusted net debt/(cash)

(36.8)

(44.6)

21.3%

(25.4)

(33.3)

30.8%

Source: Edison Investment Research estimates

Exhibit 2: Financial summary

£m

2018

2019

2020

2021e

2022e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

2,186.9

2,276.1

2,154.4

2,336.5

2,246.9

Cost of Sales

(1,933.6)

(2,015.3)

(1,916.2)

(2,054.3)

(1,997.5)

Gross Profit

253.2

260.8

238.2

282.2

249.4

EBITDA

 

 

52.3

52.0

53.4

80.2

52.2

Operating Profit (before amort. and except).

 

 

34.3

32.0

31.1

59.7

32.4

Intangible Amortisation

(0.3)

(0.4)

(0.2)

(0.2)

(0.3)

Exceptionals

(6.7)

(2.4)

(0.6)

1.0

0.0

Other

0.0

0.0

0.0

0.0

0.0

Operating Profit

27.3

29.2

30.3

60.6

32.2

Net Interest

(9.6)

(9.9)

(10.2)

(9.6)

(9.6)

Profit Before Tax (norm)

 

 

24.7

22.1

20.9

50.1

22.8

Profit Before Tax (FRS 3)

 

 

17.7

19.2

20.1

51.0

22.5

Tax

(4.7)

(4.1)

(6.4)

(11.0)

(4.9)

Profit After Tax (norm)

20.5

17.9

16.5

39.4

17.9

Profit After Tax (FRS 3)

13.1

15.2

13.7

40.0

17.6

Average Number of Shares Outstanding (m)

77.7

78.2

78.2

78.2

78.2

EPS - normalised (p)

 

 

26.3

22.9

21.1

50.4

22.9

EPS - normalised and fully diluted (p)

 

 

25.5

22.6

20.6

49.4

22.5

EPS - (IFRS) (p)

 

 

16.8

19.4

17.5

51.1

22.5

Dividend per share (p)

8.54

2.85

0.00

13.30

8.55

Gross Margin (%)

11.6

11.5

11.1

12.1

11.1

EBITDA Margin (%)

2.4

2.3

2.5

3.4

2.3

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

1.6

1.4

1.4

2.6

1.4

BALANCE SHEET

Fixed Assets

 

 

262.9

390.2

378.2

392.1

396.7

Intangible Assets

112.2

119.3

119.5

120.6

120.7

Tangible Assets

150.7

162.9

159.8

172.2

176.6

Right of use asset

108.0

98.8

99.3

99.3

Investments

0.0

0.0

0.0

0.0

0.0

Current Assets

 

 

466.3

560.5

464.8

480.9

525.5

Stocks

384.0

470.7

362.9

346.5

404.4

Debtors

71.9

79.2

59.6

79.4

76.4

Cash

1.2

0.1

33.8

45.8

35.8

Other

9.2

10.6

8.5

9.1

8.8

Current Liabilities

 

 

(502.2)

(608.4)

(494.1)

(496.5)

(533.1)

Creditors

(501.5)

(582.8)

(493.4)

(496.5)

(533.1)

Short term borrowings

(0.6)

(25.6)

(0.6)

0.0

0.0

Long Term Liabilities

 

 

(30.8)

(139.9)

(133.0)

(130.8)

(132.1)

Long term borrowings

(5.7)

(5.0)

(4.4)

(1.2)

(2.6)

Lease Liabilities

0.0

(108.1)

(99.3)

(99.7)

(99.7)

Other long-term liabilities

(25.2)

(26.8)

(29.3)

(29.9)

(29.9)

Net Assets

 

 

196.3

202.3

215.9

245.7

256.9

CASH FLOW

Operating Cash Flow

 

 

39.2

43.6

87.5

71.4

23.9

Net Interest

(2.1)

(1.0)

(1.0)

(1.7)

(0.3)

Tax

(4.7)

(4.1)

(6.4)

(11.0)

(4.9)

Capex

(23.4)

(19.5)

(11.7)

(16.8)

(15.3)

Acquisitions/disposals

1.6

(27.4)

(0.6)

(10.2)

0.0

Financing

(1.0)

(0.9)

0.0

0.0

0.0

Dividends

(5.0)

(7.2)

0.0

(6.9)

(5.7)

Other

(7.6)

(9.0)

(8.4)

(9.0)

(9.0)

Net Cash Flow

(2.9)

(25.4)

59.4

15.8

(11.4)

Opening adjusted net debt/(cash)

 

 

2.2

5.1

30.6

(28.8)

(44.6)

HP finance leases initiated

0.0

0.0

0.0

0.0

0.0

Other

0.0

0.0

0.0

0.0

0.0

Closing adjusted net debt/(cash)

 

 

5.1

30.6

(28.8)

(44.6)

(33.3)

Net financial liabilities (including lease liabilities)

138.6

70.5

55.1

66.4

Source: Company reports, Edison Investment Research estimates


General disclaimer and copyright

This report has been commissioned by Marshall Motor Holdings and prepared and issued by Edison, in consideration of a fee payable by Marshall Motor Holdings. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

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United Kingdom

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This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

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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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, 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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Marshall Motor Holdings and prepared and issued by Edison, in consideration of a fee payable by Marshall Motor Holdings. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

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. 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 (i.e. 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.

United Kingdom

This document is prepared and provided by Edison 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.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison 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. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, 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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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