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Inchcape

Inchcape “well placed to hit 2019E” says Zeus Capital

Revising 2020E and 2021E

We update our forecasts following Inchcape’s Q3 IMS on 7th November, and focus our attention on 2020E and 2021E estimates after the Group confirmed it was well placed to hit 2019E last week. In 2020E and 2021E we expect a more challenging market in Asia, and currency headwinds in regions such as Australia to persist and adjust our forecast accordingly. We now expect adj. PBT in 2020E of £270.0m (vs £307.1m previously) and £268.5m in 2021E (vs £320.9m previously), which triggers a c12% EPS downgrade in each year. We remain comfortable with our long-term thesis set out in December 2018 and continue to see Inchcape as a unique investment opportunity. The business continues to invest in the higher margin distribution business, and growth of this segment should act as a key factor in the re-rating in our view.

  • Forecasts: We expect weaker trading in Asia,as key market such as Singapore and Hong Kong continue to see trading headwinds. We incorporate a continued £25m JPY currency headwind, offset by £10m of operational improvements and cost savings. Stronger Sterling creates a further currency headwind, although purely translational, of c.£10m. We also trim our growth forecast in emerging markets. We incorporate these factors into our forecasts and now expect adj. PBT in 2020E of £270m growing to £283.9m in 2021E. We provide a profit bridge showing how we arrive at our new 2020E forecast on page 2. Net cash based on these assumptions is £203.9m (vs. £232.3m previously) in 2020E going to £211.8m (vs £268.5m previously) in 2021E, with the balance sheet clearly remaining very robust for further accretive capital allocation that has been well executed to date.
  • Investment view: Based on our revised forecasts, Inchcape trades on a 2019E P/E of 12.2x in 2020E falling to 11.2x in 2021E, which we believe is at odds vs. its distribution peers, as well as the ROCE delivered of 18%. The average share price outcome based on our valuation techniques pointed towards an intrinsic value in excess of 800p, which we believe is achievable within a three-year time horizon, which implies >30% upside from current levels.
£m2020E
old
202E
new
% difference2021E
old
2021E new% difference
Revenue9,102.28588.1(5.6)9,347.48775.7(6.1)
Adj. EBIT355.1318.0(10.4)368.9331.9(10.0)
Adj. PBT307.1270.0(12.1)320.9283.9(11.5)
EPS (p)*59.552.1(12.3)64.557.1(11.5)
DPS (p)26.826.80.026.826.80.0
Net (debt)/cash232.3203.9(12.2)268.5211.8(21.1)