Marshall Motor Holdings “will emerge as a sector winner” says Zeus Capital

Marshall Motors

Marshall Motor Holdings plc (LON:MMH) has delivered another strong trading performance, indicating that it continued to outperform the wider market during October and November. It is clear that the pent-up demand continued across the industry during Lockdown 2.0 in England, with MMH showing good outperformance within this. We are upgrading our forecasts again on the back of this statement, which reflects a record H2 performance. We believe MMH has a quality platform and will emerge as a sector winner in our view.

  • Trading update: MMH has delivered another strong trading update, indicating that trading patterns remained robust to the end of November after flagging a strong September period on 13 October. As reported widely across the sector, it appears that click and collect enabled trading activity to take place during Lockdown 2.0. We note the comments that MMH does not intend to utilise the Coronavirus Jobs Retention Scheme in 2021. We believe shows its confidence in the balance sheet despite significant and well documented industry uncertainties going into next year, with the position of Brexit still unknown at present.
  • Key drivers: The Group’s outperformance of the new retail market for October and November was +9.8% on a LFL unit sales basis. During the same period, LFL used unit sales were -12.7% with aftersales -3.8% on the same basis. Since reopening its showrooms on 2nd December, trading is said to have remained positive in what is normally a quiet period in the year.
  • Forecast changes: We are upgrading our 2020E forecasts on the back of this update reflecting this update. Our adjusted PBT forecast goes from £15.0m (after significant upgrade from break even in October) to £19.0m on the back of higher than expected activity levels in October and November. The implied H2 PBT is £27.9m following a £8.9m loss in H1, which represents a record H2 period of trading for the Group. While there has been a benefit of Government stimulus on the YOY cost base, it does show how strong the business had traded in what was a record period for the Group. The net cash position is also considerably better than our forecast and reflects strong cost control as well as a better than expected working capital performance.
  • Investment view: We re-iterate our view that Marshall Motor Holdings is a creditable and reliable platform, which we believe will emerge as a sector winner. We continue to believe that COVID-19 will accelerate consolidation in the industry with fewer large-scale players well placed to benefit. The stock trades on 7.1x revised 2020E EPS or 5x previous peak (2017A EPS), with a historic yield of 6% paid last year complete with a strong anticipated net cash position.
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Marshall Motor Holdings
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