Cambria Automobiles Q&A with Mike Allen at Zeus Capital (LON:CAMB)


Cambria Automobiles plc (LON:CAMB) is the topic of conversation when Zeus Capital’s Head of Research Mike Allen caught up with DirectorsTalk for an exclusive interview.

Q1: The company published their pre-close trading update for the 5 months to 31st January, what themes did you note in this update?

A1: So, obviously, the company have indicated that they’ve outperformed the market, again the market backdrop has not been easy particularly in the new car market but I think they’ve been good in delivering high profit per units in the face of falling volumes.

We expect them to deliver a H1 adjusted PBT of at least £6 million and that compares to about £5.5 million last year so I think they appear to be outperforming a difficult market at the moment.,

Importantly though, they have indicated that their order book for March is building more slowly versus last year’s record level but that doesn’t really come as a surprise to us given the current environment.

Q2: What’s driven their growth?

A2: We’ve clearly seen volume decline so the group saw a 9.8% decline in volume of new retail sales but profit per unit has improved as the strategic shift towards high luxury franchises has enabled them to offset that somewhat in revenue and profit terms.

Used vehicles was up 4.4% year-on-year and we’ve seen an acceleration on the 2% growth we saw in the first few months of the year so that’s good news and aftersales has remained stable as well.

Clearly, they’ve also done an acquisition in Edinburgh recently which we previously highlighted was very good value.

Q3: Has this changed your forecasts in any way?

A3: No, we’ve maintained our forecasts at this juncture so if Cambria Automobiles delivers the H1 PBT of at least £6 million, it would imply H2 down year-on-year which seems to be sensible given the current environment at the moment. Again, it’s difficult to quantify the demand and supply impacts of the coronavirus at the moment so we haven’t done that for the moment but there is a bit of slack in our numbers based on what they’re likely to deliver in the first half.

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Q4: Finally, what’s your view on Cambria Automobiles in terms of valuation?

A4: Well, it’s a company that has delivered and outperformed consistently over the last couple of years, stock is trading on a PE of about 6.5 times, EV/EBITDA of 4.5 times and if you look at the current market cap of about £66 million, we think that’s at odds in the in excess of £80 million of freehold asset bases at the moment.

So, I think on a long term view, they have strongly delivered in terms of execution, the strategy of becoming a billion revenue business of quality franchises, we think that’ll be achievable as well whether that’s in a difficult market. They’ve got a good track record of growing the business skilfully during difficult times so we certainly wouldn’t bet against them doing that again.

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