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Cambria Automobiles Plc A decade of delivery – Zeus Capital

Cambria Automobiles Plc (LON:CAMB) has delivered another robust set of results exceeding our adjusted PBT forecast by 2%. Cash generation remains strong driven by working capital management with 12 month rolling ROE in excess of 20%. While we believe trading conditions will get tougher from here, we believe the Group is well positioned to executed its proven strategy. The current valuation based on recently downgraded earnings is undemanding in our view with 2017 likely to be a year of consolidation rather than a year of decline.

  • Final results: Cambria delivered underlying PBT of £10.6m, which was +38% ahead YOY and 2% ahead of our forecast. Adjusted EBIT was 32% YOY but marginally below our forecast of £11.4m, albeit margins did expand by 20bps to 1.8% as it leveraged its cost base. Interest costs came in at £0.6m vs. our forecast of £1.0m, which drove the 2% beat to adjusted PBT and was +38% YOY. The dividend was in line with our expectations and was +20% YOY. Cash conversion was once again exceptional at 163%, driven by strong working capital management. The company reported a 12-month rolling ROE of 21.9% vs. 19.6% last year, which we believe is sector leading
  • Key drivers: New vehicle revenues were +24.7% YOY, with volumes +9.9%. Gross profits in new cars also increased +24.5% on stable margins of 6.5%, which we believe is positive given the changing mix with the implied gross profit per unit +13% at £1542. Cambria delivered another strong performance in used cars with revenues +12% YOY with volume unit growth of +5.2%. LFL volumes were +3.4% and gross profits were +14% in absolute terms with a 20bps improvement in margins backed with a gross profit per unit of £1507 (+8% YOY). Aftersales revenue increased by 8% YOY, with service hours sold +3.7% boosting gross profit by £0.8m (3%) to £26.6m with gross margins falling back 200bps to 40.6%.
  • Forecasts: We adjusted our forecasts in line with our sector thesis last week, and are therefore maintaining those headline assumptions. Our net debt forecasts do change due to the timing of large capital expenditure projects with net debt/EBITDA peaking out at 1.3x in 2018E following £31m investment in freehold investments (excluding refurbishments) in two years. The normalised FCF yield in 2019 with capital expenditure in line with depreciation is 12%.

Valuation: We continue to believe that Cambria Automobiles Plc will execute its strategy of becoming a £1bn+ revenue business implying EPS of 16p. However, the timing of this has become more unclear in the face of current market uncertainty. That said 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.

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