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Research: Industrials
Trading in Q420 has proven to be more resilient than management expected despite the national lockdown during November. As a result, following the strong Q320 performance and a continued outperformance of its markets so far in Q420, management now expects to achieve an adjusted PBT of at least £19m, c 27% higher than October’s guidance. We have increased our estimates to reflect the uplift and now expect an improved cash performance as inventory management remains robust. Challenges remain for 2021, not least Brexit and COVID-19, and we assume a relatively flat year overall with less marked disruption in H121.
Written by
Marshall Motor Holdings |
Driving through lockdown 2.0 |
FY20 trading update and estimates upgrade |
Automotive retailers |
9 December 2020 |
Share price performance
Business description
Next events
Analyst
Marshall Motor Holdings is a research client of Edison Investment Research Limited |
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Trading in Q420 has proven to be more resilient than management expected despite the national lockdown during November. As a result, following the strong Q320 performance and a continued outperformance of its markets so far in Q420, management now expects to achieve an adjusted PBT of at least £19m, c 27% higher than October’s guidance. We have increased our estimates to reflect the uplift and now expect an improved cash performance as inventory management remains robust. Challenges remain for 2021, not least Brexit and COVID-19, and we assume a relatively flat year overall with less marked disruption in H121.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/18 |
2,186.9 |
24.7 |
26.3 |
8.54 |
5.0 |
6.5 |
12/19 |
2,276.1 |
22.1 |
22.9 |
2.85 |
5.8 |
2.2 |
12/20e |
2,129.8 |
19.1 |
19.2 |
0.00 |
6.9 |
0.0 |
12/21e |
2,240.3 |
19.0 |
19.0 |
6.00 |
7.0 |
4.6 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Outperforming the market in Q420
The closure of showrooms in the shorter national lockdown in November has proven to be more manageable than during H120. On a like-for-like basis, a 9.8% outperformance of the new car market was achieved in aggregate in October and November as click-and-collect orders and sales were allowed. Used car sales fell 12.7% (H120 down 31.8%) and aftersales revenues fell just 3.8% as all workshops remained open through the second lockdown. Adjusted net cash (excluding leases) was £29.8m at 30 November 2020, benefiting from continued tight control of stock levels, and despite repaying of £10.9m deferred VAT early. The group has benefited from various government support schemes since the pandemic started and we do not expect a dividend in that environment despite the strong balance sheet.
FY21 outlook remains challenging
Overall prospects for FY21 remain very uncertain. Brexit is at the start of the year and the continued influence of the pandemic will most likely affect car demand, and a higher unemployment rate is likely to be more of a constraint especially when the furlough scheme finally ends. We expect Marshall Motor Holdings to continue to perform well against that market backdrop and estimate a flat year for PBT, albeit at a higher level. The balance sheet should facilitate pursuit of M&A opportunities to optimise the dealership network. We expect the progressive technology driven evolution of the car retail market, including potential changes to the distribution model, to continue to favour larger groups with stronger financial capacity.
Valuation: Multiple expansion looking appropriate
The FY21 P/E rating of just 7.0x appears extremely low given the uplift in EPS and the expectation that performance can be maintained next year. If the trading performance is set to recover from FY22, we would normally expect to see multiple expansion at this point in the demand cycle.
Revisions to earnings estimates
We have modestly increased our sales estimates for FY20 to reflect the stronger-than-expected Q420 trading performance, which should carry some momentum into FY21. The outlook remains uncertain with Brexit at the start of the year and the market development in a vaccinated world extremely difficult to predict. With higher unemployment, the expectation remains that markets will remain under pressure overall, but we expect MMH to continue to perform well against those underlying trends. However, a more normal profile to the year might be expected, although a further short lockdown in Q121 cannot be discounted. Nevertheless, we expect Marshall Motor Holdings to achieve our previous expectation for FY21e, with a modestly improved EBITA margin reflecting the stronger-than-anticipated level achieved in FY20 coming from a slightly better revenue mix and efficiencies that drop straight to PBT, which rises 37% from depressed levels.
Exhibit 1: Marshall Motor Holdings revisions to earnings estimates
Year to December (£m) |
2020e |
2021e |
||||
|
Prior |
New |
% change |
Prior |
New |
% change |
Revenue |
||||||
New car |
976.5 |
988.1 |
1.2 |
1,035.8 |
1,036.0 |
0.0 |
Used car |
921.1 |
931.6 |
1.1 |
978.7 |
978.2 |
-0.1 |
Aftersales |
251.2 |
254.0 |
1.1 |
270.1 |
270.5 |
0.1 |
Intra group |
-43.3 |
-43.8 |
1.1 |
-44.2 |
-44.3 |
0.3 |
Group revenues |
2,105.5 |
2,129.8 |
1.2 |
2,240.3 |
2,240.3 |
0.0 |
|
|
|
|
|
|
|
EBITDA |
49.0 |
53.3 |
8.8 |
45.1 |
50.2 |
11.4 |
Underlying EBITA |
27.0 |
31.2 |
15.6 |
24.9 |
30.0 |
20.7 |
Underlying PBT |
14.8 |
19.1 |
29.4 |
13.9 |
19.0 |
36.5 |
|
|
|
|
|
|
|
EPS - underlying continuing (p) |
14.8 |
19.2 |
29.4 |
13.9 |
19.0 |
36.5 |
DPS (p) |
0.0 |
0.0 |
n.m. |
6.0 |
6.0 |
0.0 |
Adjusted net debt / (cash) (excl. lease liabilities) |
1.8 |
(23.4) |
n.m. |
(9.0) |
(16.4) |
81.8 |
Source: Edison Investment Research
Exhibit 2: Financial summary
£m |
2018 |
2019 |
2020e |
2021e |
||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||
Revenue |
|
|
2,186.9 |
2,276.1 |
2,129.8 |
2,240.3 |
Cost of Sales |
(1,933.6) |
(2,015.3) |
(1,885.3) |
(1,993.9) |
||
Gross Profit |
253.2 |
260.8 |
244.5 |
246.4 |
||
EBITDA |
|
|
52.3 |
52.0 |
53.3 |
50.2 |
Operating Profit (before amort. and except). |
|
|
34.3 |
32.0 |
31.2 |
30.0 |
Intangible Amortisation |
(0.3) |
(0.4) |
(0.4) |
(0.4) |
||
Exceptionals |
(6.7) |
(2.4) |
(1.8) |
0.0 |
||
Other |
0.0 |
0.0 |
0.0 |
0.0 |
||
Operating Profit |
27.3 |
29.2 |
29.0 |
29.6 |
||
Net Interest |
(9.6) |
(9.9) |
(12.1) |
(11.0) |
||
Profit Before Tax (norm) |
|
|
24.7 |
22.1 |
19.1 |
19.0 |
Profit Before Tax (FRS 3) |
|
|
17.7 |
19.2 |
16.9 |
18.5 |
Tax |
(4.7) |
(4.1) |
(3.7) |
(4.1) |
||
Profit After Tax (norm) |
20.5 |
17.9 |
15.0 |
14.9 |
||
Profit After Tax (FRS 3) |
13.1 |
15.2 |
13.2 |
14.5 |
||
Average Number of Shares Outstanding (m) |
77.7 |
78.2 |
78.2 |
78.2 |
||
EPS - normalised (p) |
|
|
26.3 |
22.9 |
19.2 |
19.0 |
EPS |
|
|
25.5 |
22.2 |
18.6 |
18.4 |
EPS - (IFRS) (p) |
|
|
16.8 |
19.4 |
16.8 |
18.5 |
Dividend per share (p) |
8.54 |
2.85 |
0.00 |
6.00 |
||
Gross Margin (%) |
11.6 |
11.5 |
11.5 |
11.0 |
||
EBITDA Margin (%) |
2.4 |
2.3 |
2.5 |
2.2 |
||
Operating Margin (before GW and except.) (%) |
1.6 |
1.4 |
1.5 |
1.3 |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
262.9 |
390.2 |
388.1 |
393.1 |
Intangible Assets |
112.2 |
119.3 |
119.3 |
119.3 |
||
Tangible Assets |
150.7 |
162.9 |
162.9 |
167.8 |
||
Right of use asset |
108.0 |
106.0 |
106.0 |
|||
Investments |
0.0 |
0.0 |
0.0 |
0.0 |
||
Current Assets |
|
|
466.3 |
560.5 |
586.2 |
592.2 |
Stocks |
384.0 |
470.7 |
457.9 |
470.5 |
||
Debtors |
71.9 |
79.2 |
83.2 |
76.2 |
||
Cash |
1.2 |
0.1 |
35.1 |
35.1 |
||
Other |
9.2 |
10.6 |
10.0 |
10.4 |
||
Current Liabilities |
|
|
(502.2) |
(608.4) |
(613.8) |
(607.6) |
Creditors |
(501.5) |
(582.8) |
(613.8) |
(607.6) |
||
Short term borrowings |
(0.6) |
(25.6) |
0.0 |
0.0 |
||
Long Term Liabilities |
|
|
(30.8) |
(139.9) |
(144.6) |
(151.6) |
Long term borrowings |
(5.7) |
(5.0) |
(11.7) |
(18.7) |
||
Lease Liabilities |
0.0 |
(108.1) |
(106.1) |
(106.1) |
||
Other long term liabilities |
(25.2) |
(26.8) |
(26.8) |
(26.8) |
||
Net Assets |
|
|
196.3 |
202.3 |
215.9 |
226.1 |
CASH FLOW |
||||||
Operating Cash Flow |
|
|
39.2 |
43.6 |
78.8 |
25.7 |
Net Interest |
(2.1) |
(1.0) |
(1.0) |
(1.9) |
||
Tax |
(4.7) |
(4.1) |
(3.7) |
(4.1) |
||
Capex |
(23.4) |
(19.5) |
(11.1) |
(16.1) |
||
Acquisitions/disposals |
1.6 |
(27.4) |
0.0 |
0.0 |
||
Financing |
(1.0) |
(0.9) |
0.0 |
0.0 |
||
Dividends |
(5.0) |
(7.2) |
0.0 |
(1.6) |
||
Other |
(7.6) |
(9.0) |
(9.0) |
(9.0) |
||
Net Cash Flow |
(2.9) |
(25.4) |
54.0 |
(7.0) |
||
Opening adjusted net debt/(cash) |
|
|
2.2 |
5.1 |
30.6 |
(23.4) |
HP finance leases initiated |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other |
0.0 |
0.0 |
0.0 |
(0.0) |
||
Closing adjusted net debt/(cash) |
|
|
5.1 |
30.6 |
(23.4) |
(16.4) |
Net financial liabilities (including lease liabilities) |
138.6 |
82.7 |
89.7 |
Source: Company reports, Edison Investment Research
|
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