By Rob Golding
As dealer groups across the UK looked to close out 2013 with a strong Q4, AM analyses some of the largest dealer groups in the UK.
This plc performance analysis looks at the City’s view of the listed dealer groups and in turn its consideration of the wider automotive retailer community.
Sanjay Vidyarthi is a new analyst on the Stock Exchange-listed motor dealer sector and to kick-start his arrival, he has published a detailed appreciation of Vertu.
In his note, published under the name of employer, Liberum Capital, he said Vertu shares are 25% cheaper than they should be. Vidyarthi also reckons the entire motor dealer sector is cheap, because:
♦ Firstly, despite some consolidation in recent years, it remains fragmented and it should be a matter of time before consolidation returns
♦ He points out that of the 4,900 dealers in the country, only 20% are owned by the top 10 groups.
|Robert Forrester, Vertu chief executive|
Vidyarthi said: “The opportunity for the strongest dealers to further consolidate the market is considerable.” He likes the look of what he sees at Vertu: “[Robert] Forrester has built a balanced portfolio of brands consistent with the UK market profile, a market share of 2.7%, and sixth position among the biggest groups .”
Vidyarthi has studied the composition of Vertu dealerships carefully: “The portfolio is focused on volume brands – 78 out of 99 outlets. The brands in those outlets have a total market share of 51.7%.”
The growth of those brands so far this year has been greater than the growth of the car market as a whole.
Vidyarthi found some common features in what Vertu likes to buy.
Firstly, Forrester likes businesses that are underperforming on sales and have low new-vehicle market share. Secondly, he is very keen on poor processes and disciplines.
Vidyarthi went right back to the date of Vertu’s listing on the stock market and found no goodwill impairment since day one.
Having built the Vertu group around volume cars, Forrester is now ready to tackle premium.
The give-away symbol of that is the recent acquisition of three Albert Farnell Land Rover dealerships.
Vertu paid £31 million, just over seven times earnings. That’s a significant amount of money relative to other recent deals and suggests a changing attitude by Forrester.
Forrester’s task now is to make sure the easy milkers continue to deliver the cream. The Farnell deal should be a fairly easy start for that. Land Rover is about to feed out a series of new models, which should be as creamy as Gold Top.
There is some anxiety ahead for investors potentially because the formal results that Vertu will produce under statutory Stock Exchange rules will not necessarily break out the figures.
There could be a dip in profit figures relative to last year without accompanying explanation as to the dilutive effect of acquisitions, warns Vidyarthi. In the real world, this is immaterial, but it will be an irritation in the results season to have to show that margins have fallen when competitors have pushed ahead.
So what is the market doing? Flat, up or down? There is not much unanimity when you look in the tea leaves.
Vidyarthi takes a crack at it and is positive: “The market outlook is strangely good. It averaged 2.35m in the years 1996 to 2007. The average after that was 2.03m, with the SMMT forecasting 2.25m in 2013. That would be an 8.4% lift on 2012.”
Last year, the carmakers were redirecting their products away from Europe and into the UK.
Strength of sterling relative to the euro has been a lot to do with it. There is a double benefit in Volkswagen, for example, pumping Golfs into UK fleets when VW has costs in Germany and revenue in sterling.
The repatriation of profit to Germany is also better value when sterling is stronger.