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Vertu Motors Analyst Q&A with Zeus Capital: New retail sales volumes up 0.9% (LON:VTU)

Vertu Motors plc (LON:VTU) is the topic of conversation when Zeus Capital’s Head of Research Mike Allen caught up with DirectorsTalk for an exclusive interview.

Q1: We spoke about the motor sector as a whole a few days ago but Vertu Motors have just put a June performance update out. Mike, how did they perform?

A1: June really took us by surprise in a positive way. Performance was strong across all business areas, new retail sales volumes were up 0.9% year on year on a like -for-like basis and that compared to the market which was down 19.2% on prior registrations we saw last week.

Clearly, strong retail performance there been attributed to pent up demand that we’ve spoken about before in our sector review last week. Consumers have got increased savings ratios during lockdown, additional disposable income from cancelled travel plans but also the desire to avoid the use of public transport.

We’ve also talked before about demand for used cars and I think there’s clearly been pent up demand there but also, we’ve seen supply constraints and that’s increased margin significantly above normal level as well.

Obviously, aftersales has been very strong and we’ve seen the momentum that increased during lockdown and into this month.

Fleet was weak and has been slow to start up but we think momentum will start to grow in there from July onwards as the company is obviously a big player in that market as well.

So, the upshot of all that is that VTU have announced that they generated an adjusted PBT of £9 million and that was despite of lack of quarterly OEM volume bonuses but you do have to consider the government support that’s there as well. So, they received about £3.3 million in the month in furlough grants and that’s with 75% of the workforce now actively back and it was about 37% at the beginning of the month but a very good outcome.

Q2: Just looking at the cash performance, how are they for cash?

A2: The cash, again, that really did surprise us again on the upside so they ended June with net cash of £9.7 and that’s a significant improvement of some 49.2 million that they reported on the 22nd May. That’s driven largely by a targeted reduction in used vehicles stock and all rent and tax payments are also up to date in that month as well and obviously they worked very hard on working capital.

We do expect that to partially unwind in future months as we move towards normalised trading but I think what it does do is show the group’s typically impressive balance sheet.

Q3: Looking at the outlook, how do you view Vertu Motors?

A3: I think, clearly, first full month of being open in June was clearly what we would’ve expected, having said that there is a long way to go but the orders going into July look encouraging as well.

We’d expect a slow down a little bit in August as it’s typically a small trading month but the real is acid test, as we said in our sector piece last week, will be how September market fairs in the new post-COVID world. I think that’s going to be the real acid test really but clearly, they’ve started better after lockdown than most people would’ve expected so, so far so good.

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