Cambria Automobiles (LON: CAMB) has announced a confident pre-close trading update this morning confirming that trading in the eleven-month period to 31 July 2019 has been significantly ahead of last year. The group expects the full year performance to be ahead of current market expectations. This follows a 10-11% EPS upgrade to our forecasts when it announced H1 results in May. We update our forecasts following this update. We now expect adj. PBT for the full year of £12.0m (vs. £11.0m previously) equating to an 8.9% EPS upgrade in 2019 (and 6-7% in 2020E and 2021E) reflecting the strong performance YTD. This has largely been driven by the outperformance in the group’s High Luxury Segment (HLS). We remain firmly confident in Cambria’s ability to deliver strong shareholder value from here and see a medium-term intrinsic value north of 100p per share.
- Trading update: The new car market has declined 6.6% over the eleven-month period to July 2019, with diesel the worst affected (down 24.4%). Well documented supply side challenges have impacted new car sales across the sector. Cambria experienced a 15.5% decline in new car sales on a LFL basis, albeit this is distorted by a one off commercial vehicle deal which distorts the comparative year. This decline in unit sales has been offset by the group’s successful HLS franchised outlets that have driven a significant increase in the gross profit per unit YoY. In used, LFL units were up 0.8%, with an improved gross profit per unit driving an improvement in the total and like for like gross profit in used YoY. Aftersales has delivered another solid performance, with revenue up 1.8% and gross profit up 1.1%, both on a LFL basis.
- Forecasts: We increase our 2019E revenue forecast to £670.0m (vs. £650.4m previously) reflecting the higher price point of the HLS franchise outlets and the strong performance YTD. Higher gross profit per unit increases the absolute gross profit generated from these units but depresses margins on a percentage basis (gross margins at 11.5% vs. 11.7% previously). We expect £12.0m adj. PBT in 2019E (vs. £11.0m previously). We assume a flat performance YoY going into 2020E with small growth in revenues offset by costs pressures in the business. In 2021E we forecast adj. PBT of £12.2m. Net debt on updated expectations is £9.9m in 2019E going to £12.7m in 2020E as we factor in an asset sale and timing of capital projects.
Investment view: We remain confident in the Cambria story longer term, and believe it remains well positioned to deliver £1bn+ of revenue over the medium term. As we are seeing across the sector at present, near term valuation multiples are depressed, and the current market capitalisation of the Group remains at odds with the >£80m invested freehold asset base. The changes to the portfolio as they mature should be exciting in our view. Cambria trades at a a discount on a P/E basis to its direct UK peer group, in a sector that looks oversold to us.