Q1: Marshall Motor Holdings delivered another strong performance. Can you just talk us through the key points from the update?
A1: As you said, they delivered another strong trading update, they’ve basically indicated that the trading patterns were robust at the end of November and that was after flagging a strong September on the 13th of October.
So, I think what we’re seeing now, being widely reported across the sector, is the click and collect enabled trading activity to take place during the second lockdown and after sales was also strong as well. On top of that, they’ve also up performed the market.
They were up 9.8% on like-for-like unit sales against the market, October/November the market was down during that period and they also appear to outperform on used and aftersales as well.
Very good news really and I think the otherer interesting comment was they were talking about not utilizing the Coronavirus job retention scheme next year which I think shows a lot of confidence in their business and balance sheet.
Q2: What were the key drivers in the update?
A2: They definitely outperformed the market in new, used, and aftersales so new was 9.8%, like-for-like used unit sales were down about 12.7% in October/November and after sales was down 3.8% year on year on the same basis as well, which we think is definitely robust given that period included a second national lockdown.
Q3: Presumably on the back of that, you’ve upgraded your forecasts?
A3: We have so we’re upgrading our 2020 forecast so our adjusted PBT in 2020 goes from £15 million to £19 million, bear in mind initially we were forecasting a breakeven position for the full year. So, obviously, we’ve had a significant upgrade already, and we’re upgrading again on the back of this strong performance in October/November.
If you look at the implied H2 PBT of £27.9 million against the £8.9 million loss that they announced in the first half, that implies a record H2 performance for the group which in this environment with the current levels of uncertainty, I think you say it’s a huge result.
Clearly, they have had some benefit of government stimulus on the cost base year on year but nevertheless, to deliver a record period in the second half of the year would take some doing, we think, and that filters down to the cash position as well.
So, the the cash position as around £30 million is considerably better than what we forecast and that reflects very good cost control and obviously strong working capital as well so a lot of ticks in the boxes there.
Q4: How would you view Marshall Motor Holdings in terms of an investment then Mike?
A4: I think we’ve been fairly consistent, we think MMH is a very credible and reliable platform in this industry, we think it will emerge as a sector winner.
We do think COVID-19 will accelerate consolidation in the industry and capacity will have to leave the industry as well so, for us, given the kind of track record it’s building is a very good platform.
If you look at the valuation, it trades on about 7 times PE on 2020 numbers or 5 times the previous peak that we saw in 2017, the historic yield is about 6% as well and obviously, it’s got very strong balance sheets.
So, from a long-term valuation perspective, it looks very compelling.