Inchcape: H1 results – progress on all fronts

Inchcape plc

Inchcape plc (LON:INCH) has delivered a strong set of H1 results, which are 13% ahead of our forecasts at the adjusted PBT level. The Group is seeing strong growth across the group and the operational disciplines put in place are also driving clear margin improvements. New contracts have been awarded, cash generation is very strong and a new £100m share buyback programme has been launched. We will be upgrading our forecasts by at least 10% post the analyst meeting, and we believe Inchcape continues to be well positioned as it continues to make progress on all fronts.

  • H1 results: Adjusted PBT came in at £143m vs. our forecast of £126.6m and £9.0m last year (£156m in 2019 pre pandemic). Revenues of £3.9bn were +37% on an organic basis and 3% below 2019 levels. Gross margins were resilient while overhead savings coming through delivered operating margins of 4.1% vs. 0.9% last year. Exceptional items were £82m, the majority of which relate to the Russian retail disposal. FCF was £184m vs. an outflow of £5m last year driven by higher profits, working capital and careful capital allocation. Net cash ex lease liabilities was £435m or including leases post IFRS 16 was £102m. A H1 DPS of 6.4p has been declared, with ROCE advancing to 24% from 14% last year. Three new distribution contract awards have been made including a new OEM in Geely.
  • Key drivers: Distribution saw revenues +39% YOY with all regions delivering double digit growth rates. Cost mitigation measures also helped to deliver a H1 operating profit of £120m, which helped to expand margins to 5.1% rising 240bps YOY. Retail revenues were +27% or+44% on an organic basis (adjusting for disposals), with operating profits coming in at £39m vs. a loss of £18m last year. The margin of 2.5% was strong for retail.
  • Forecasts: The outlook statement is guiding towards an adjusted PBT of at least £260m, which compares to our recently upgraded forecast of £235m and would imply a c10% EPS upgrade. The Group has also announced the launch of a £100m share buyback programme that will further advance earnings. We will update our earnings forecasts post the analyst meeting at 8.30am.
  • Investment view: Our average intrinsic value estimate increased to 1,048p per share post the last earnings upgrade last month. This implies in excess of 20% upside, and will increase further as we factor in its latest earnings upgrade and share buyback programme. While the share price performance has been robust of late, we believe the risk/reward profile remains positive for Inchcape long term as it becomes the undisputed distributor of choice for OEMs coupled with a very effective capital allocation strategy.
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