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Cambria Automobiles PLC

Cambria Automobiles Plc H1 PBT +5% ahead, +21.7% YOY

Cambria Automobiles Plc (LON:CAMB) delivered strong H1 results with adjusted PBT exceeding our forecast by 5.1% and delivering growth of 21.7% YOY. Softer vehicle volumes were offset by a significant uplift in average selling price and improved PPU as the group benefitted from positive mix and pricing discipline. Cambria continues to generate an industry leading return on equity, up 60 basis points to 21.8% in the period. We are upgrading our forecasts to reflect the H1 outperformance, but share management’s caution on the remainder of the year. That said, we believe the Group has a bright future as it strides towards its medium-term objectives.

H1 results: Adjusted PBT of £5.6m is +21.7% YOY and 5.1% ahead of our forecasts. Revenue grew 11.0%, driven by acquisitions made in the year. Interest costs of £0.2m were below our estimate, benefitting from lower interest rates and a tight control on stock levels. Adjusted EPS was 2.6% ahead of our expectations, +19.5% YOY. The Group remains committed to its progressive dividend policy delivering YOY growth of 25%. Cash conversion was nearly 120% and the rolling 12-month ROE was running at 21.8%.

Key themes: Both new and used vehicle volumes declined -4.6% and -1.2% respectively YOY, but this was offset by a notable increase in average selling prices due to improved sales mix. Aftersales revenue increased 9.9% YOY. New vehicles delivered a £2.4m positive YOY contribution to gross profits with used cars £0.3m and aftersales £0.2m. Overhead recovery was also improved, running 40bps below last year at 9.8% as a % of revenues. It is also important to put into context the nearing completion of complex building projects, the integration of acquisitions, as well as closures and severe disruption to its aftersales operation following the fire at Welwyn Garden City.

Forecast: We have upgraded our forecasts given Cambria Automobiles plc’s positive performance in H1 and confidence in exceeding consensus expectations for the full year. We increase our revenue expectation by 3.7% with adjusted PBT forecasts raised 5.7%. This gives an implied H2 PBT of £5.6m, which is marginally below the £6.0m delivered last year with a solid March already delivered in H2. However, this does reflect our caution that trading is likely to get more difficult from here as per our industry thesis from November 2016.

Zeus Capital Valuation: Compiling the various valuation techniques used in the note, we average 103p per share, which ranges from a SOTP value of 123p to a low of 84p based on a conservative mid cycle P/E multiple using an average of 13x peak and 6x trough. At current levels, we believe the shares are significantly undervalued given the delivery of strategy investment in freehold assets and sector leading ROCE generation.

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