While trading conditions have deteriorated post March this year, Cambria Automobiles Plc (LON:CAMB) continues to deliver a robust performance, and is expected to deliver FY 2017 results to August in line with our expectations. We are therefore maintaining our forecasts on the back of this statement, albeit remain mindful of current industry trends and the importance of the September market. We remain confident in the medium-term investment case.
Trading update: Cambria has announced a trading update for the first 11 months to 31 July 2017. The Group has maintained the momentum delivered last year, and has confirmed headline forecasts will be ahead on a total and LFL basis. Significant operational progress has been made with its property and site refurbishments during the period. The Barnet Jaguar Land Rover facility has progressed well, with the closure of its Swindon site also going to plan. In addition, a 4.3 acre development site in the Hatfield Business Park has been secured to facilitate brand new Jaguar Land Rover and Aston Martin dealerships. Planning consent remains in process so these facilities can be constructed in 2018. Final results will be announced on 22 November.
Trading themes: As previously reported, and consistent with what other dealers have been reporting, trading conditions have become more challenging post March this year. Sterling weakness and consumer uncertainty are key factors behind this. That said, the September order book is building as anticipated, in the current market conditions. Within the mix, used sales were -5.5% (LFL excluding Swindon closure was -1.7%), and was offset by improved profit retention with gross profit per unit continuing to increase on a total and LFL basis. We regard this as a very good outcome given margin pressures reported elsewhere. New vehicle sales were -12.2% or -17.6% on a LFL basis. The drop-in volume was partly driven by the reduction in activity in Barnet Land Rover Jaguar following disruption caused by the building project and partly attributable to reductions in unit sales from certain volume manufacturer partners. That said, bonus targets were achieved, and gross profit therefore continued to progress YOY. Aftersales saw revenue +8.4% (LFL +1.7%) with profitability +2.2% or -1.3% on a LFL basis. The LFL fall in profitability was impacted by the fire in Welwyn Garden City, which has already been well flagged.
Forecasts: We are maintaining our trading forecast assumptions on the back of this update. However, are making adjustments to our capital expenditure assumptions due to the phasing of payments, and now anticipate £13.5m of special project investment (namely Hatfield at £9.5m and Swindon at £4.0m) that will now fall into 2018E. We are mindful of the pressures in the industry at present, and will review our assumptions once we are in a position to digest trading patterns during the key period of September.
Valuation: While trading conditions have, no doubt, got more difficult, we remain confident in the Cambria Automobiles Plc story longer term, and believe it remains well positioned to deliver £1bn+ of revenue during this period. As we are seeing across the sector at present, near term valuation multiples look depressed, and the current market capitalisation of the Group remains at odds with the >£80m freehold asset base.