Marshall Motor Holdings Plc (LON:MMH) has delivered solid results, which are 4% ahead of Zeus Capital forecasts at the adjusted PBT level. This marks a transformational year for the group following the acquisitions of SGS and Ridgeway, which appear to be bedding in well. We are maintaining our FY forecasts for the year ahead, albeit the order book for March appears to be building well. The shares have recovered from their post Brexit slump, but the long term valuation remains attractive to us based on near term multiples based on cautious forecasts and in the context of £106.5m of freehold/long term leases underpinning the current market value of the shares.
Final results: Revenues are +54.1% YOY (full year SGS and 7 months from Ridgeway) and 3% below our forecast, albeit with LFL running at 10.7% with all segments showing organic growth. Gross margins were 11.6% and down 18 bps YOY due to the shift in new and fleet, albeit slightly ahead of our forecast at £215.8m at £220.5m. Underlying EBIT at £32.3m (ex amortisation, transaction and restructuring costs) was 4% ahead of our forecasts with interest costs at £6.9m coming in slightly ahead of our £6.6m forecast. That said, adjusted PBT was 4% ahead of our forecast at £25.4m and +60% YOY vs. the £15.8m delivered last year. The tax rate was also marginally lower than expected with adjusted EPS +66% YOY and 6% ahead of our forecast. The final dividend was in line with our forecast at 5.5p and was +85% YOY. Cash generation was very strong, particularly on the working capital front (stock control). Net debt (including leasing debt) was 1% below our forecast at £119.0m, and was 7% below our forecast on an ex leasing basis at £54.5m (ZC £58.6m).
Key performance drivers: New car volumes were +5.5% on a LFL basis vs. the market +2.3% and private registrations +0.2%. The market definitely got tougher in H2, and the H2 LFL growth rate of +8.1% is impressive vs. the market +1.2%. Total gross profit from new vehicles was +50.7% YOY. Used units were +0.4% on a LFL basis albeit revenues were +8.3% on a LFL basis reflecting a stronger premium mix and higher average selling prices. Used gross profits were +52.5% YOY. Aftersales saw revenues +5.7% on a LFL basis, with gross margins also advancing 110bps to 45.6% during the period driven by the impact of acquisitions and efficiency improvements. The leasing business was also said to have performed strongly delivering a PBT of £4.9m and was flat YOY.
Forecasts: We are maintaining our FY forecasts for now despite the industry getting off to a strong start in Q1. The order book for March is said to be encouraging to date, and this is consistent with what other dealers have been indicating of late. Management remain cautious on the UK vehicle market for 2017 as a whole.
Zeus Capital Investment view: The shares have recovered from the trough of 128p in December last year, which we believe is justified. It’s also important to note that Marshall Motor Holdings Plc has significant asset backing, which covers a significant amount of the current market capitalisation of the company (>80% underpinned). The shares continue to trade at the lower end of the UK dealer average (there is some justification here given liquidity and above average leverage), which also continues to look oversold to us given the backdrop we are seeing going into the key trading period of March.
