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Vertu Motors Plc

Vertu Motors Plc Adding clicks to bricks

Vertu Motors Plc (LON:VTU) has announced the acquisition of Vans Direct, which is an award winning and established on-line light commercial van broker business. It is maintaining its management team. The acquisition accelerates multi-channel retailing across the Group and bring synergies with its existing light commercial vehicle business. We are maintaining our forecasts at this juncture, albeit calculate this transaction should be 3-5% EPS enhancing from 2020E, under fairly cautious assumptions regarding synergies.

Acquisition: Vertu has announced the acquisition of Vans Direct Limited. This is a well-established independent on-line light commercial broker business, which is also developing into the car leasing arena. The business was founded in 1999, but flourished following the appointments of Jane Pocock as Managing Director and Richard Simmonds as Operations Director in 2009, both of whom will be maintained in the business along with their 42 colleagues. This business has won the “Best Van Broker” award from Leasing Broker Federation for the last three years (2016-2018) We believe this acquisition will benefit from synergies in terms of vehicle supply and financing from a large PLC such as Vertu.

Financials: Vertu will pay an estimated cash consideration of £7.5m, which includes an estimated amount of an earn-out arrangement over a two year period. The terms of this earn out may result in an additional consideration over a two year period up to an amount of £2m, being paid in the event that future profit targets are exceeded. Annual EBITDA would be >£2.0m to trigger this and therefore be EPS enhancing for the Group. The consideration includes a goodwill payment of £6m together with net assets of £1m (including cash of £0.6m). To 31 October 2017, Vans Direct reported revenues of £34.6m and EBITDA of £1.2m implying margins of 3.5% and gross margins of 11.7%. Based on the initial EV consideration of £6.9m and assuming a year 3 EBITDA of £1.7m, this implies Vertu paid 4x EBITDA and a P/E below 8x, which we believe looks excellent value to expand the Group’s multi channel business, with above average margins.

Forecasts: We will review our forecasts at the year end trading update during the week commencing 3rd March given the proximity to year end. However, we anticipate this transaction to be 3-5% EPS enhancing from 2020E under conservative assumptions.

Investment view: We believe the long term valuation remains compelling at Vertu trading on a 2019E P/E of 8.1x falling to 6.8x in 2020E and an EV/EBITDA of 5.1x falling to 4.4x without any benefit from this acquisition. Management remain committed to driving shareholder value and we note it has acquired £1.0m of the £2.0m allotted share capital investment to date via its ongoing share buyback programme.

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