Q1: Now, Marshall Motors, they’ve recently made some changes to their portfolio, can you talk us through the changes that they’ve made?
A1: Yes, of course. So, they’ve made a couple of changes in the run up to the year-end, first of all they agreed to sell their leasing business to Bank of Ireland, that has now been approved by the FCA and they’ve agreed a gross cash consideration of £42.5 million, that’s 11.5 times 2016 earnings which we felt was a good price. The net cash proceeds of that will be to reduce the existing levels of debt and they are settling a pension liability with that as well.
The other transaction is a portfolio update really, so they’ve closed five franchise dealerships and one used car centre and those businesses were loss-making at the moment and the closure costs on that is about £6 million. Again, we think that’s a good move in terms of cleaning up the portfolio and looking at driving quality returns from what they’ve got so we think both are good moves.
Q2: Do these changes change your forecast in any way?
A2: They do, so they combine effect on our 2018 numbers is to reduce earnings by about 15% in 2018 and 2019, however the total net debt falls by over 80% so we think strategically, particularly on certain points in the cycle as well, that’s a sensible move.
Q3: So, just to round up, what’s your view on the Marshall Motor Holdings stock at the moment?
A3: We accept that the trading conditions will get difficult for the dealers from here, but we do think a lot has been priced in and there’s good asset backing in that sector as well. I think, the case of Marshall Motors, it still trades at a discount to the sectors so it’s on a PE of about 7 times but with a much stronger balance sheet going into that as well.
So, we do think the sector is poised for more difficult trading, but we think a lot of that has been priced in and there is potential for Marshall to catch up with the sector rating in terms of the portfolio changes that they’ve made.