Marshall Motor Holding — Strong finish to 2018 expected

Marshall Motor Holdings (LN: MMH)

Last close As at 28/03/2024

394.00

0.00 (0.00%)

Market capitalisation

308m

More on this equity

Research: Industrials

Marshall Motor Holding — Strong finish to 2018 expected

Marshall Motor Holdings (MMH) released a trading update, which indicates that the group’s Q4 performance is now expected to be ahead of management and market expectations. Driven by stronger than anticipated used car sales with healthy margins, PBT is now expected to exceed FY17’s record level for the continuing business. We are increasing our FY18e PBT and EPS by 6.4%. Brexit uncertainty remains at the forefront of FY19 prospects, and as some of the currently favourable market dynamics may wane, we leave our FY19 estimates unchanged. The P/E ratio for FY19 is an undemanding 5.8x.

Andy Chambers

Written by

Andy Chambers

Director, Industrials

Industrials

Marshall Motor Holdings

Strong finish to 2018 expected

Trading update

Automotive retail

14 November 2018

Price

147p

Market cap

£114m

Net cash (£m) at 30 June 2018

0.9

Shares in issue

77.9m

Free float

34.9m

Code

MMH

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

10.9

(6.4)

(9.0)

Rel (local)

10.

1.4

(4.4)

52-week high/low

176p

123p

Business description

Marshall Motor is the seventh largest UK motor retailer, operating 100 franchises spread across 23 brands at 83 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

FY18 results

13 March 2019

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) released a trading update, which indicates that the group’s Q4 performance is now expected to be ahead of management and market expectations. Driven by stronger than anticipated used car sales with healthy margins, PBT is now expected to exceed FY17’s record level for the continuing business. We are increasing our FY18e PBT and EPS by 6.4%. Brexit uncertainty remains at the forefront of FY19 prospects, and as some of the currently favourable market dynamics may wane, we leave our FY19 estimates unchanged. The P/E ratio for FY19 is an undemanding 5.8x.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/16

1,899.4

25.4

26.2

5.50

5.6

3.7

12/17

2,268.9

29.1

30.8

6.40

4.8

4.4

12/18e

2,207.8

25.7

26.3

6.75

5.6

4.6

12/19e

2,267.3

24.8

25.4

6.95

5.8

4.7

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

Q4 used car sales benefit from new car shortages

The disruption and volatility seen in the supply of new cars that arose from the introduction of the Worldwide Harmonised Light Vehicle Testing Procedure (WLTP) emissions regime from 1 September 2018 has had some positive consequences. With constrained supply of certain new models, buyers appear to have switched to replacing cars with nearly new models. As a result, used car sales were higher than expected with healthy margins maintaining the 37 basis point rise for the segment seen in H118. The period also compares to a weak trading period in Q417. New car shortages are also thought to be benefiting margin, albeit on lower volumes. We increase our FY18 revenue expectations for MMH by 0.4% and our EBIT by 4.8%. Our FY18e PBT increases 6.4% to £25.7m from £24.2m previously, and compares to £25.4m for the ongoing businesses in FY17. FY18e EPS also increase by 6.4%.

FY19 expectations: Uncertainty persists

The effects of the WLTP on some manufacturers are likely to persist into Q119, so no latent bounceback in demand for those new models should be expected. This could mean the positive trends currently being experienced may persist for that period, despite the ongoing disruption to diesel demand arising from muddled government policy. The impact of Brexit remains a major uncertainty, but generally not a favourable one. If used car demand recedes as the year progresses due to recovering new car sales, some adverse margin pressure may arise, compounded by ongoing cost pressures. While management has mitigated these in FY18, there is less scope for cutting costs through portfolio streamlining. We therefore take a cautious view of FY19 prospects, leaving our numbers unchanged.

Valuation: discount to peers should diminish

MMH currently trades on just 5.8x our FY19e EPS, a discount of over 20% against its immediate UK auto retailer peer group. The better than expected performance should encourage this value gap to diminish, supported by the healthy yield.

Exhibit 1: Financial summary

£m

2015

2016

2017

2018e

2019e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

1,232.8

1,899.4

2,268.9

2,207.8

2,267.3

Cost of Sales

(1,087.5)

(1,678.9)

(2,003.8)

(1,948.4)

(2,000.9)

Gross Profit

145.3

220.5

265.1

259.4

266.4

EBITDA

 

 

22.5

38.4

46.4

41.6

41.1

Operating Profit (before amort. and except).

 

 

18.7

32.3

37.2

32.7

32.2

Intangible Amortisation

(0.2)

(0.3)

(0.3)

(0.4)

(0.5)

Exceptionals

(0.5)

(3.2)

24.1

0.9

0.0

Other

0.0

0.0

0.0

0.0

0.0

Operating Profit

18.0

28.8

60.9

33.2

31.8

Net Interest

(2.9)

(6.9)

(8.1)

(7.0)

(7.4)

Profit Before Tax (norm)

 

 

15.8

25.4

29.1

25.7

24.8

Profit Before Tax (FRS 3)

 

 

15.1

21.9

52.8

26.1

24.4

Tax

(3.6)

(4.4)

(3.8)

(5.6)

(5.2)

Profit After Tax (norm)

9.4

20.3

23.8

20.3

19.6

Profit After Tax (FRS 3)

11.5

17.5

49.0

20.6

19.2

Average Number of Shares Outstanding (m)

59.4

77.3

77.4

77.2

77.2

EPS - normalised (p)

 

 

15.8

26.2

30.8

26.3

25.4

EPS – normalised and fully diluted (p)

 

 

15.3

25.4

29.8

25.5

24.6

EPS - (IFRS) (p)

 

 

19.3

22.6

63.4

26.7

24.9

Dividend per share (p)

2.98

5.50

6.40

6.75

6.95

Gross Margin (%)

11.8

11.6

11.7

11.8

11.8

EBITDA Margin (%)

1.8

2.0

2.0

1.9

1.8

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

1.5

1.7

1.6

1.5

1.4

BALANCE SHEET

Fixed Assets

 

 

150.0

326.4

266.6

283.5

291.0

Intangible Assets

40.8

122.0

121.6

121.7

121.7

Tangible Assets

109.2

204.4

145.0

161.8

169.3

Investments

0.0

0.0

0.0

0.0

0.0

Current Assets

 

 

307.5

475.2

499.1

468.0

486.6

Stocks

240.6

380.0

401.3

375.3

385.4

Debtors

28.9

71.0

64.1

61.8

63.5

Cash

24.1

0.1

4.9

2.9

8.9

Other

13.9

24.1

28.8

28.0

28.8

Current Liabilities

 

 

(290.1)

(584.9)

(539.3)

(510.4)

(524.1)

Creditors

(263.4)

(507.2)

(538.6)

(510.4)

(524.1)

Short term borrowings

(26.7)

(77.7)

(0.6)

0.0

0.0

Long Term Liabilities

 

 

(37.6)

(71.1)

(35.2)

(35.0)

(33.1)

Long term borrowings

(24.7)

(41.4)

(6.5)

(6.4)

(4.5)

Other long term liabilities

(12.9)

(29.7)

(28.7)

(28.6)

(28.5)

Net Assets

 

 

129.9

145.7

191.2

206.1

220.4

CASH FLOW

Operating Cash Flow

 

 

29.6

98.9

60.8

37.7

35.9

Net Interest

(1.1)

(1.4)

(2.9)

(2.7)

(1.2)

Tax

(3.0)

(17.3)

(3.8)

(5.6)

(5.2)

Capex

(39.6)

(61.9)

(57.5)

(25.7)

(16.4)

Acquisitions/disposals

(21.5)

(91.4)

44.6

0.0

0.0

Financing

66.9

0.0

0.0

0.0

0.0

Dividends

(15.4)

(3.3)

(4.5)

(4.9)

(5.3)

Other

8.6

(15.5)

80.2

0.0

0.0

Net Cash Flow

24.5

(91.8)

116.8

(1.3)

7.8

Opening net debt/(cash)

 

 

51.7

27.2

119.0

2.2

3.5

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 net debt/(cash)

 

 

27.2

119.0

2.2

3.5

(4.3)

Source: Company data, 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 Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 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 Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. 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 2018. “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 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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, 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 Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 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 Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. 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 2018. “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 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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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