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Marshall Motor Holdings Strong results, solid platform says Zeus Capital

Marshall Motor Group plc (LON:MMH) has delivered another strong set of full-year results despite what was a difficult market backdrop. On an underlying basis, PBT was 4% ahead of our forecast. Cost pressures were well mitigated, and strong outperformance was demonstrated across all core areas of the Group. We are maintaining our underlying forecasts at this juncture albeit with some presentational changes as a result of IFRS 16. We remain happy with the long-term investment case and see MMH as a highly credible platform for growth, backed by an experienced and stable management team with the potential to emerge as a sector winner.

  • Final results: On a headline basis, MMH showed good overall outperformance vs. the market. Total LFL revenues were +2.2% ahead of last year, gross margin remains above sector average at 11.4% despite 17bps decline YOY reflecting the challenging market backdrop. Underlying LFL operating profit of £33.1m (adjusted for loss making acquisitions and closed sites) reflects disciplined cost management, with LFL operating expenses up just 1.5% YOY despite well document headwinds of rising people and property costs. Interest costs increased by 3.9% (including acquisitions) to £9.9m, albeit we believe this has been well contained given the increase in vehicle stocking costs we have seen across the industry. Underlying adjusted PBT of £22.1m is 4.2% ahead of our forecast and a creditable outcome against a demanding market backdrop.
  • Key drivers: MMH saw total new unit sales +0.3%, with retail -2.2% and fleet +4.5%. New car LFL gross margins moved higher, +27bps YOY to 7.4% showing clear outperformance vs. the industry in this area. MMH delivered a record used performance, with LFL unit sales +6.1% and revenues +5.3%. Margins were down 47bps to 6.7% (mainly the Q2 residual impact), but this has been an area MMH has focused hard on with its strict 56-day stocking policy and use of technology. MMH continued to perform strongly in this market driving LFL aftersales revenues at +3.2%, albeit LFL margins did drop 127 bps to 44.3% during the period. MMH continued to manage cost inflation well, with just a 1.5% increase in LFL operating expenses.
  • Forecasts: We are maintaining our underlying PBT forecasts on the back of the uncertain outlook and anticipate the shape to be more H1 weighted based on comments on current March order book build. The presentation of our forecasts has been adjusted to reflect the adoption of IFRS 16.
  • Valuation: While market conditions remain uncertain, we believe Marshall Motor Holdings has a proven platform on which to deliver market outperformance. The Group’s strong balance sheet is supportive of further earnings enhancing M&A activity, as well as an attractive and secure dividend yielding 6.0%. At current levels the Group trades on an FY20 PE of 7.6x, falling to 6.8x in FY21. On a medium term view our intrinsic valuation of 253p implies 76% upside.

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