Motorpoint Group Plc (LON:MOTR) is the UK’s largest independent vehicle retailer, operating out of 11 sites throughout the UK. The company has a good track record of growth and roll out potential. Despite this, we believe the franchised dealers have a more diversified business model and Motorpoint’s performance will prove more cyclical. Given the asset backing and greater diversity of the listed, we see better opportunities elsewhere in the sector.
Business model overview – Motorpoint is the UK’s largest independent vehicle retailer, operating out of 11 sites throughout the UK. In 2016 the company delivered £729m of revenue and EBITDA of £19.6m. The company’s principal business is the sale of ‘nearly new’ cars that are less than 3 years old with mileage below 15,000. The group sells vehicles from brands representing over 95% of marques.
Key differences vs. franchised dealer model – Motorpoint is not tied to the OEM in the same way a franchised dealer is. This allows greater flexibility in sourcing and selling the stock as well as reducing capex requirements. Being tied to the OEM however has benefits in difficult trading environments as OEMs support the franchised dealers. Franchised dealers generate revenue from new sales, aftersales (parts and servicing) as well as used sales, creating greater diversity in their business model which should provide a less cyclical performance in the longer term, in our view.
Risk profile – Motorpoint’s business model is focused exclusively on the sale of used cars. While the company has substantial scale and a good track record in sourcing quality stock with no sign of a slowdown in the used car market, we believe less diversified nature of the business model increases the risk profile vs the franchised dealers. We believe the performance of the group will prove more cyclical as changing market dynamics make sourcing quality stock at good prices more challenging. We also see potential for increased competition, as conditions become tougher in the new segment and franchised dealers look to the used car market to drive growth.
Forecast assumptions – We forecast a 3-year revenue CAGR of 12% to 2019E, assuming the company continues to see growth in volumes from its existing estate and the roll out of sites progresses as planned at one new site per annum. We note some execution risk inherent in this forecast, driven by volume and pricing improvements at existing sites. We forecast average EBITDA margins more than 2% through the forecast period, in line with privately owned peers. This drives an EPS CAGR of 8% to 2019E.
Investment view – Motorpoint Group Plc currently trades at 11.0x FY17E earnings and an EV/EBIT of 8.0x representing a 37% and 29% premium of the franchised dealers respectively. We believe the listed dealers offer better yield support and asset backing.
