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Cambria Automobiles PLC

Cambria Automobiles Plc Zeus Capital anticipating strong H1 results

We anticipate strong H1 results from Cambria Automobiles Plc (LON:CAMB) on 9th May, after flagging its H1 performance is likely to be “substantially ahead” of last year. We maintain our caution on new car volumes and profits post Q1 2017 and are maintaining our FY forecast assumptions for now. We expect the used car and aftersales business to continue to trade well, and operationally the property developments and site refurbishments also remain on track. We continue to believe there is significant value at current levels with the current share price more than underpinned by the significant and growing asset base of the company.

H1 results: We are forecasting revenues of £328.6m +18% YOY with gross margins +10bps YOY to 12.0% and overheads as a % of revenue running flat YOY at 10.2%. This produces an underlying EBIT of £5.9m with margins flat YOY at 1.8%. Given the increased activity levels in the business we are forecasting a higher interest charge of £0.6m vs. £0.4m last year, which produces an adjusted PBT of £5.3m, which is 15% ahead of the £4.6m delivered last year. If delivered, this would imply adjusted EPS of 4.3p, which is 16% ahead of the 3.7p delivered last year. We also anticipate modest progression on the 0.2p interim dividend paid last year.

Key themes: As previously flagged in its pre-closed trading update on 7th March, and consistent with what we have seen elsewhere in the sector, new vehicle unit sales were -2.9% and -11.1% on a LFL basis. That said, gross margins did improve with gross profit per unit on a LFL basis continuing to increase demonstrating good pricing discipline. The used car business continues to trade well, with unit sales +0.6% or +2.6% on a LFL basis with gross profit per unit also continuing to advance resulting in enhanced profitability. Aftersales saw revenues +11.7% or +2.6% on a LFL basis, with profitability +3.8% YOY. On a LFL basis, profitability was -2.0% impacted by a fire at the Welwyn Garden City Jaguar/Aston Martin site, which has already been well flagged. There will be a business interruption insurance claim, which has not been factored into these figures yet.

Forecasts: We are maintaining our forecasts for now, which is consistent with management comments of trading in line with market expectations in its pre-closed statement. Our FY forecasts imply a flat H2 vs. last year, which could prove too conservative in the context of the record new car sales we have seen during Q1 calendar year. This is something we will review once we gain clarity of trading patterns in March.

Investment view: 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. We would also point out that Cambria should have a property portfolio worth approaching £80m once its investment strategy is fully executed, which also points to significant long term value from here.

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