# Marshall Motor Holdings PLC Comfortably in line with expectations

- Link: https://www.directorstalkinterviews.com/marshall-motor-holdings-plc-comfortably-line-expectations/412720825
- Published: 2017-01-12T10:53:38+00:00
- Author: Giles Arbor

**Marshall Motor Holdings PLC** ([LON:MMH](https://www.directorstalkinterviews.com/company/marshall-motor-holdings/mmh.l))
Group Chief Executive Daksh Gupta and Chief Financial Officer Mark Raban talk to
DirectorsTalk about its trading update. Mark talks about the main drivers behind
the good results and news flow for the coming months while Daksh talks about acquisitions
and brexit.

Zeus Capital said about today’s trading update:

**Marshall Motor Holdings Plc** (LON:MMH) has confirmed it is trading comfortably
in line with expectations for FY 2016 with the integration of Ridgeway, cost control
and net debt levels all going to plan. The outlook for 2017 and beyond is less certain
and is consistent with our industry view, albeit we reduced our EPS by 13-16% to
account for this in November. While we had concerns over the balance sheet and level
of leverage at this point in the cycle, we believe the current share price has heavily
discounted this level of risk with the stock on 5x prospective earnings with the
current market capitalisation underpinned by property assets.

**Pre-close statement: **MMH has issued a pre-closed trading update this morning,
which confirms that it will trade “comfortably” in line with expectations to December
2016. Costs are running to plan with good control in place, with exceptional costs
relating primarily to the Ridgeway acquisition (ZC £4.0m) in line with expectations.
The net debt is also said to be in line with management expectations, and we have
assumed a total position of £119.6m, which includes leasing debt and is running 
at 2x EBITDA (including leasing depreciation) or 1.25x excluding leasing debt, which
is asset backed and not used for covenant purposes. The Group has over £100m of 
freehold/long leasehold property, with the integration of the Ridgeway acquisition
said to be going to plan.

**Key performance drivers: **The Retail business saw increased LFL revenues during
H2 vs. H1 albeit margins did come under pressure, which is a trend we have seen 
emerge in some quarters across the sector. New car LFL was ahead of the +3.2% delivered
in H1 during H2, which shows good outperformance vs. the market. LFL sales in used
cars remained robust and marginally ahead YOY. The strong LFL performance seen in
aftersales revenues and margins also continued throughout 2016, which is a positive
development. Within the Leasing business, this performed in line with expectations.
The fleet continued to show growth with 2.7% underlying growth. Within this, the
used car market also remained supportive with good levels of disposal profitability.

**Trading outlook: **The tone of the outlook statement has become more cautious,
and concurs with our industry view anticipating a decline in new car sales during
2017. That said, management remain confident that it remains well positioned to 
generate growth due to their recent acquisitions. As part of our sector update in
November, we cut our 2017E and 2018E EPS estimates by 13% and 16% respectively reflecting
our caution in the year ahead. We are maintaining these assumptions.

**Investment view: **The shares have fallen nearly 40% from its post Ridgeway peak
and are close to trough levels at present. While we did have some concerns over 
the level of total debt in the business and it has less balance sheet flexibility
vs. some of its peers, we do think these fears have been overdone and the valuation
based on cautious forecast assumptions looks compelling. It’s also important to 
note that the business has significant asset backing, which covers the current market
capitalisation of the company. The shares trade at a >25% P/E discount to the UK
dealers on 5x vs. a discounted sector multiple of 7x, which looks oversold on both
counts.

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