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Research: Industrials
Marshall Motor Holdings’ (MMH) management has provided another positive trading update following on from the AGM statement in May. The market demand for new and used cars remains strong and the supply of new and high-quality used cars is constrained. In combination, the effect is to boost used car wholesale prices and margins to exceptional levels. We upgrade our FY21 adjusted PBT by 18% to a record £26.1m. However, supply constraints appear to be intensifying in the new car market and may persist into FY22, which is likely to face cost headwinds and reduced used car prices. As a result, our FY22 estimate remains unchanged. With the balance sheet strengthened further, the FY22e P/E multiple of 8.3x is undemanding as dividends resume in FY21.
Written by
Marshall Motor Holdings |
Strong used car market drives record results |
Trading update |
Automotive retailers |
25 June 2021 |
Share price performance
Business description
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Marshall Motor Holdings is a research client of Edison Investment Research Limited |
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Marshall Motor Holdings’ (MMH) management has provided another positive trading update following on from the AGM statement in May. The market demand for new and used cars remains strong and the supply of new and high-quality used cars is constrained. In combination, the effect is to boost used car wholesale prices and margins to exceptional levels. We upgrade our FY21 adjusted PBT by 18% to a record £26.1m. However, supply constraints appear to be intensifying in the new car market and may persist into FY22, which is likely to face cost headwinds and reduced used car prices. As a result, our FY22 estimate remains unchanged. With the balance sheet strengthened further, the FY22e P/E multiple of 8.3x is undemanding as dividends resume in FY21.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/19 |
2,276 |
22.1 |
22.9 |
2.85 |
8.3 |
1.5 |
12/20 |
2,154 |
20.9 |
21.1 |
0.00 |
9.1 |
0.0 |
12/21e |
2,297 |
26.1 |
26.2 |
6.00 |
7.3 |
3.1 |
12/22e |
2,368 |
22.8 |
22.9 |
6.60 |
8.3 |
3.5 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Favourable supply and demand dynamics in H121
The strength of trading in the first four months of the year noted at the AGM has continued in Q221 and management now expects an exceptionally strong H121 performance. Demand for both new and used cars has remained high, with MMH continuing to outperform the UK markets in both segments. New car supply has been increasingly constrained by component supply issues, with a knock-on effect on the availability of high-quality used cars where supply has also tightened. As a result, used car prices have been favourable, rising sharply during the period. While the dynamic has shifted the revenue mix from new to used, the used margins are much higher, which drove the stronger trading, with management now expecting adjusted PBT to reach a record level in FY21. The improved profitability also drops through to higher FY21 net cash balances and should support the return to dividend payments at the half year results on 10 August 2021.
Potential headwinds for H221 and FY22
The new car supply shortages appear increasingly likely to intensify in H221 and may persist into FY22, which could have an adverse impact on dealership performances. In addition, some costs such as business rates that have been deferred during the pandemic will resume, acting as a significant headwind next year. We expect the strong used car environment to moderate in H221, initially as used car availability affects volumes, but then as prices drop as supply improves.
Valuation: Rating remains undemanding
The astonishing performance in H220 has continued in H121 despite the disruption to markets, with a return to more normal trading patterns likely in FY22. We expect the undemanding rating to fall further as MMH returns to growth from FY23, potentially supported by acquisition opportunities that may arise.
Earnings revisions
We have altered the mix of new and used car sales due to the anticipated supply shortages in new and the improved pricing in used, which has a beneficial impact on margins in FY21. As we expect used car pricing to moderate as H221 develops, and costs deferred during the pandemic to resume, we currently expect FY22 performance to be more subdued and our estimates are essentially unchanged. Our revised estimates are shown below, with the marginal increase in FY22 adjusted PBT driven by a slightly lower interest charge due to the improved FY21 cash flow.
Exhibit 1: Marshall Motor Holdings earnings revisions
£m |
2021e |
2022e |
||||
|
Prior |
New |
% change |
Prior |
New |
% change |
New Car |
1,032.6 |
1,008.3 |
-2.3% |
1,084.2 |
1,059.7 |
-2.3% |
Used Car |
1,053.7 |
1,078.0 |
2.3% |
1,064.2 |
1,088.7 |
2.3% |
Aftersales |
256.2 |
256.2 |
0.0% |
266.5 |
266.5 |
0.0% |
Intra group |
(45.9) |
(45.9) |
0.0% |
(46.5) |
(46.5) |
0.0% |
Group revenues |
2,296.5 |
2,296.6 |
0.0% |
2,368.4 |
2,368.4 |
0.0% |
|
|
|
|
|
|
|
EBITDA |
52.2 |
56.0 |
7.2% |
52.8 |
52.8 |
0.0% |
Underlying EBITA |
32.0 |
35.7 |
11.7% |
32.5 |
32.5 |
0.0% |
Underlying PBT |
22.2 |
26.1 |
17.6% |
22.8 |
22.8 |
0.2% |
|
|
|
|
|
|
|
EPS - underlying continuing (p) |
22.3 |
26.2 |
17.6% |
22.9 |
22.9 |
0.2% |
DPS (p) |
6.0 |
6.0 |
0.0% |
6.6 |
6.6 |
0.0% |
Adjusted net debt/(cash) |
(19.3) |
(22.4) |
15.8% |
(19.2) |
(22.3) |
16.2% |
Source: Edison Investment Research
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 |
2,296.6 |
2,368.4 |
Cost of Sales |
(1,933.6) |
(2,015.3) |
(1,916.2) |
(2,044.0) |
(2,103.1) |
||
Gross Profit |
253.2 |
260.8 |
238.2 |
252.6 |
265.3 |
||
EBITDA |
|
|
52.3 |
52.0 |
53.4 |
56.0 |
52.8 |
Operating Profit (before amort. and except). |
|
|
34.3 |
32.0 |
31.1 |
35.7 |
32.5 |
Intangible Amortisation |
(0.3) |
(0.4) |
(0.2) |
(0.2) |
(0.3) |
||
Exceptionals |
(6.7) |
(2.4) |
(0.6) |
0.0 |
0.0 |
||
Other |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Operating Profit |
27.3 |
29.2 |
30.3 |
35.5 |
32.2 |
||
Net Interest |
(9.6) |
(9.9) |
(10.2) |
(9.6) |
(9.6) |
||
Profit Before Tax (norm) |
|
|
24.7 |
22.1 |
20.9 |
26.1 |
22.8 |
Profit Before Tax (FRS 3) |
|
|
17.7 |
19.2 |
20.1 |
25.9 |
22.5 |
Tax |
(4.7) |
(4.1) |
(6.4) |
(5.6) |
(4.9) |
||
Profit After Tax (norm) |
20.5 |
17.9 |
16.5 |
20.5 |
17.9 |
||
Profit After Tax (FRS 3) |
13.1 |
15.2 |
13.7 |
20.3 |
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 |
26.2 |
22.9 |
EPS |
|
|
25.5 |
22.6 |
20.6 |
25.6 |
22.4 |
EPS - (IFRS) (p) |
|
|
16.8 |
19.4 |
17.5 |
25.9 |
22.6 |
Dividend per share (p) |
8.54 |
2.85 |
0.00 |
6.00 |
6.60 |
||
Gross Margin (%) |
11.6 |
11.5 |
11.1 |
11.0 |
11.2 |
||
EBITDA Margin (%) |
2.4 |
2.3 |
2.5 |
2.4 |
2.2 |
||
Operating Margin (before GW and except.) (%) |
1.6 |
1.4 |
1.4 |
1.6 |
1.4 |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
262.9 |
390.2 |
378.2 |
383.4 |
388.2 |
Intangible Assets |
112.2 |
119.3 |
119.5 |
119.7 |
119.8 |
||
Tangible Assets |
150.7 |
162.9 |
159.8 |
164.9 |
169.6 |
||
Right of use asset |
108.0 |
98.8 |
98.8 |
98.8 |
|||
Investments |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Current Assets |
|
|
466.3 |
560.5 |
464.8 |
531.2 |
564.9 |
Stocks |
384.0 |
470.7 |
362.9 |
424.9 |
450.0 |
||
Debtors |
71.9 |
79.2 |
59.6 |
73.5 |
75.8 |
||
Cash |
1.2 |
0.1 |
33.8 |
23.8 |
29.8 |
||
Other |
9.2 |
10.6 |
8.5 |
9.0 |
9.2 |
||
Current Liabilities |
|
|
(502.2) |
(608.4) |
(494.1) |
(552.8) |
(572.4) |
Creditors |
(501.5) |
(582.8) |
(493.4) |
(552.8) |
(572.4) |
||
Short term borrowings |
(0.6) |
(25.6) |
(0.6) |
0.0 |
0.0 |
||
Long Term Liabilities |
|
|
(30.8) |
(139.9) |
(133.0) |
(130.1) |
(136.1) |
Long term borrowings |
(5.7) |
(5.0) |
(4.4) |
(1.5) |
(7.6) |
||
Lease Liabilities |
0.0 |
(108.1) |
(99.3) |
(99.3) |
(99.3) |
||
Other long-term liabilities |
(25.2) |
(26.8) |
(29.3) |
(29.2) |
(29.2) |
||
Net Assets |
|
|
196.3 |
202.3 |
215.9 |
231.7 |
244.5 |
CASH FLOW |
|||||||
Operating Cash Flow |
|
|
39.2 |
43.6 |
87.5 |
28.0 |
35.1 |
Net Interest |
(2.1) |
(1.0) |
(1.0) |
(1.7) |
(0.3) |
||
Tax |
(4.7) |
(4.1) |
(6.4) |
(5.6) |
(4.9) |
||
Capex |
(23.4) |
(19.5) |
(11.7) |
(16.5) |
(16.1) |
||
Acquisitions/disposals |
1.6 |
(27.4) |
(0.6) |
0.0 |
0.0 |
||
Financing |
(1.0) |
(0.9) |
0.0 |
0.0 |
0.0 |
||
Dividends |
(5.0) |
(7.2) |
0.0 |
(1.6) |
(4.8) |
||
Other |
(7.6) |
(9.0) |
(8.4) |
(9.0) |
(9.0) |
||
Net Cash Flow |
(2.9) |
(25.4) |
59.4 |
(6.4) |
(0.1) |
||
Opening adjusted net debt/(cash) |
|
|
2.2 |
5.1 |
30.6 |
(28.8) |
(22.4) |
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) |
(22.4) |
(22.3) |
Net financial liabilities (including lease liabilities) |
138.6 |
70.5 |
77.0 |
77.1 |
Source: Company accounts, Edison Investment Research
|
|
Research: TMT
Tinexta’s new venture with a subsidiary of Intesa Sanpaolo (IS), a leading bank in Italy, will enable it to distribute its own services that help SMEs to fund, market and grow their businesses through a more significant network with existing strong relationships. We upgrade our FY22 PBT forecast by 2% and the rapid build in revenue and profitability of the new venture through FY25, post our explicit forecast period, leads to an increase in our DCF-based valuation to €36.4 per share.