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Marshall Motor Holdings Plc

Marshall Motor Holdings PLC Pre-close trading statement

Marshall Motor Holdings Plc (LON:MMH) has confirmed it is trading ahead of expectations for the full year following a strong H1 performance, with a particularly strong first quarter driven by both modest LFL revenue growth and to a greater extent outperformance from the Ridgeway acquisition. The outlook further out is less certain with the board highlighting growing uncertainty in the new car market as reasons for a more cautious long term view, which is a view we concur with. That said, we upgrade our EPS forecasts in 2017 and 2018 by 6-7% and believe the current share price looks heavily discounted with the stock on a prospective P/E of sub 5x with the dividend yield approaching 5% and the current market capitalisation underpinned by property assets.

Pre-close statement: MMH has issued a pre-close trading update this morning, which confirms that following a strong H1 performance, driven by a particularly good performance in the first quarter, the company is trading ahead of expectations for the full year. The retail business has seen material growth in revenue and profitability as the Ridgeway assets have made a strong contribution. In line with the wider market the company experienced a particularly strong Q1 as new car registrations were pulled forward ahead of the change to VED. The group saw good growth of used and aftersales revenue although there was continued margin pressure in the used car segment through the period. The leasing segment has continued to experience good profitability, albeit we expect this to be down YOY during H1 following a exceptional period last year following a reduced level of disposals.

Forecast assumptions: Following the positive update from Marshall Motor Holdings PLC this morning we are upgrading our 2017 and 2018 EPS forecasts by 6-7%. For 2017E we anticipate a H1 adjusted PBT of £18.0m vs. £14.0m last year, albeit anticipate an implied H2 of £10.0m vs. £11.0m last year to reflect tougher market conditions. We have also flowed through modest growth into 2018E. Our net debt forecasts also fall following the improved trading performance and the disposal made for £2m earlier this year.

Outlook: The outlook statement was cautious on a longer-term basis, consistent with our industry view anticipating further declines in new car volumes through 2017. It is clear that Q2 trends in the new car market have deteriorated following a record Q1 this year. From a demand side perspective, we remain cautious with consumer confidence softening in recent months against a backdrop of increasing political and economic uncertainty.

Investment view: While there is growing uncertainty across the sector, we believe this is more than priced into the shares as it trades on a prospective P/E of sub 5x with a dividend yield approaching 5%. The current market capitalisation is also more than backed by freehold assets (£109m freehold and long leasehold assets at 2016 balance sheet position) we believe is also attractive for a business that is clearly delivering against a tougher trading backdrop.

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