Cambria Automobiles (LON:CAMB) is the topic of conversation when Zeus Capital’s Head of Research Mike Allen caught up with DirectorsTalk for an exclusive interview.
Q1: Cambria Automobiles, they’ve announced the acquisition of an Aston Martin franchise and also a Rolls-Royce franchise. Mike, what are your thoughts on these acquisitions?
A1: We think this is a very good move. They’ve acquired the businesses from Leven Cars Group which has gone into administration so they’ve paid £1.6 million for these two dealerships, £1.5 million of which is underpinned by property and the rest is plant and machinery. So, there’s no goodwill paid on this deal, very little.
I think this adds Roll-Royce to the brand portfolio within its high luxury segment which is good and that’s the only Rolls-Royce franchise in Scotland which, again, I think is a good opportunity for them. We also know that they’re a good and significant operator within Aston Martin so they know that brand very well.
It’s clearly been opportunistic but they’ve extracted very good value within this acquisition.
Q2: Has this meant a change to your forecasts in any way?
A2: It has, so we’ve obviously accounted for the £1.4 million consideration into our net debt numbers, we haven’t assumed any impact to August 2020 and we’ve assumed in 2021, a modest upgrade to our earnings forecast of about 2%.
We have been a bit cautious in terms of ability to reinvigorate the business there but we think strategically, long-term, they’ll extract very good value from this.
Q3: In terms of an investment case, what’s your view on Cambria Automobiles?
A3: We’re very confident in the medium term investment case for the company, we’ve been saying this for a long time. We’re comfortable they can get to at least £1 billion of revenue, an above average margin business geared towards premium and luxury brands.
We do think the valuation is at odds against the in excess of £80 million invested freehold asset base at the moment. If you look at the valuation, it’s trading on sub 6 times PE and that’s to August 2020 with an EV/EBITDA of 4 times and the dividend yield of about 2%. If you look at what this business has delivered since IPO with minimum capital requirements, we think that is at odds, it is at a discount to a sector which is at distress valuation multiples at the moment as well.
If you look at the track record of outperforming against our forecast expectations, even last year which was a tough market environment I do think that valuation looks very modest at the moment.