Cambria Automobiles “expect the balance sheet position to be robust” says Zeus Capital

Car Sales

Cambria Automobiles plc (LON:CAMB) has issued its Pre-Close Update indicating that it has seen a good recovery post lockdown from June, and appears to be consistent with what other operators have reported in the sector. However, the messaging around September appears to be more cautious as the order book is currently building at a slower rate vs. last year. We would expect FY20 results to be within 20% of last year given the strong H1 already reported, and believe the cost initiatives undertaken and currently in process ensure it maintains a robust balance sheet.

Pre-close update: Cambria has issued a Pre-Close Trading Update for the 11 months to 31 July 2020 ahead of FY results, which will be announced on 25 November. As per the H1 results issued on 6 May, Cambria reacted swiftly to the lockdown and has taken significant cost reduction measures across the business. Post lockdown, trading has been strong in June and July, which is consistent with what other operators in the sector have experienced. That said, this bounce back has not fully mitigated the impact of lock down but has gone some way in reducing it.

Key drivers: New retail units were -26.6% during the 11-month period and -27.6% including fleet and commercial. Gross profit per unit continues to advance by 4% driven by mix changes towards the High Luxury Segment. Used unit sales in the Group were -21.6% but traded well either side of lock down with gross profit per unit +4.3%. Aftersales saw revenue -13.6% but again traded well either side of lock down. Cambria has also benefited from a £3.7m CJRS grant and benefited from a £1.1m reduction in business rates. Tax payments have been maintained so a deferred payment liability does not build up. A further cost reduction programme is in the process of being implemented, with further detail expected to be given at the time of the FY results.

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Outlook: The trading patterns seen from June appear to be consistent across the sector, with August also seemingly seeing ongoing pent up demand particularly in used cars as previously discussed. However, Cambria do comment that the September order book is building more slowly than last year. The management team have maintained its cautious approach to the wider economic environment from Q4, but also within the automotive market on both supply and demand side factors with Brexit looming and more demanding emissions regulations driving OEM behaviour. That said, the Group remains confident it can navigate itself through such testing times.

Investment view: While financial guidance is currently suspended, we would expect Cambria Automobiles to be within 20% of the £12.3m adjusted PBT delivered last year. We know the H1 performance was c£1m ahead of last year, with H2 likely to be behind due to the impact of COVID-19. We would also expect the balance sheet position to be robust given the cost measures taken to date. We therefore see Cambria as one of the survivors in an industry where significant change, disruption and potentially consolidation is anticipated.

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