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Motorpoint Group PLC FY16 trading update

Motorpoint Group Plc (LON:MOTR) has this morning released a trading update confirming it is trading at the upper end of current expectations. The company has reported a strong footfall and increased online traffic, driving improved volume performance across the groups sites. The 12th site in Sheffield is scheduled to open in late April and the company has confirmed there remains a good pipeline of new sites across the UK. We continue to 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 franchised dealers, we see better opportunities elsewhere in the sector.

Trading update – Revenue for FY16 of £820m is expected, a 12.5% increase YOY and c17% ahead of ZC forecasts. Revenue has been driven by a strong final quarter performance with increased footfall at sites and online traffic driving volume growth. New sites at Castleford and Oldbury have performed well, making positive contributions to the final quarter in FY17.

Outlook – The company has highlighted macroeconomic uncertainty across the UK economy, but is cautiously optimistic regarding the UK used vehicle market. We note the record Q1 performance of the new car market and expect a slow down from here with greater uncertainty around the UK consumer and potential for real wage growth to slow as inflation starts to come through.  We believe demand in the used car market remains strong with volumes expected to be at record levels for 2016 according to CAP HPI, with residual values also robust. We also anticipate trends in the aftersales market to be robust given the rising UK car parc, albeit we note potential cost pressures.

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.

Zeus Capital Investment view – We maintain our thesis as explained in our initiation note from 20th March and continue to prefer the asset backing and value opportunities of the franchised dealers at present. Motorpoint Group PLC currently trades at 11.5x FY17E earnings and an EV/EBIT of 8.4x representing a 37% and 34% premium to the franchised dealers respectively. We believe the listed dealers offer better yield support and asset backing.

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