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Cambria Automobiles PLC

Cambria Automobiles Plc AGM statement – Zeus Capital view

Cambria Automobiles Plc (LON:CAMB) has released an AGM trading update, which essentially confirms that it continues to perform in line with expectations. The Group has seen margin and volume pressures in its new car business during Q1 of its financial year, which is consistent with our industry thesis pointing towards a tougher market in 2017. Its performance in used and aftersales continues to be robust and remains on track. We are maintaining our forecast assumptions on the back of this statement, and continue to believe there is significant value from here based on its current valuation, increasing asset backing as well as the progress delivered to date from its proven management team.

AGM statement: Cambria has released an AGM statement this morning, which contains trading information for its Q1 trading period. Overall, the Group continues to trade in line with revised expectations that we re-set across the sector in November. Encouragingly, trading for the first three months of the new financial year has been ahead of last year, albeit there have been signs of margin pressure in new cars in October and volume pressures in November as anticipated. Operationally, the performance of recent acquisitions remains consistent with prior expectations, and the balance sheet remains robust to ensure they “remain well placed to take advantage of any opportunities that may arise.”

Key performance drivers: Following a strong key September trading period as previously flagged, Cambria did see some pressure on new car margins in October followed by volume pressures in November (a seasonally quiet period). Q1 LFL volumes were -9.4% (-0.7% in actual terms) with gross profit per unit GPPU improving YOY albeit due to a more favorable brand mix. Used vehicles continues to perform well with Q1 unit sales +3.6% or +2.5% on a LFL basis with GPPU continuing to advance, which we view as encouraging. Aftersales remained robust with total revenue +13.1% during Q1 or +2.9% on a LFL basis and profitability +6% on the prior year. LFL profitability was -1.5% due to the impact of a fire in October in Welywn Garden City as previously flagged.

Forecasts: We are maintaining our forecasts on the back of this statement, which is consistent with management comments of trading in line with market expectations. This is also line with our revised sector thesis reflecting a 10% drop in new car sales with cost pressures from 2017

Investment view: We continue to believe that Cambria Automobiles Plc will execute its strategy of becoming a £1bn+ revenue business through organic growth and acquisitions. Even with the current market uncertainty, its trough ROCE of 11% remains ahead of its WACC and testament to its strategy that aims to deliver long term value at all stages of the cycle, with a normalised FCF yield approaching 15%. We would also point out that Cambria should have a property portfolio worth in excess of £70m once its investment strategy is fully executed, which also points to significant long term value from here.

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