Vertu Motors Plc Q&A with Zeus Capital (LON:VTU)

Vertu Motors Plc

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: Vertu Motors published their full year results today, can you talk us through those?

A1: The full year results from Vertu we thought were very respectable despite what was an uncertain market.

So, revenue was up about 7% year-on-year and beat our expectations by 10%, EBIT was down 10% year-on-year albeit that was 10% ahead of our forecasts and due to a lower tax rate, earnings was down 12% year-on-year but 14% ahead of our expectations. They also marginally increased the dividend as well by about 7% and that was ahead of our expectations, we expected a flat dividend so we found that was good news and confidence in their ability to execute a difficult market.

I think the big delta really was the cash performance, that was much better than what we were expecting. We were forecasting net debt levels of £15 million and actually we found that there was minimum net debt of £.2 million and that includes vehicle stocking loans as well within that calculation. So, to have a debt of £.2 million including these stocking loans actually shows the strength of the balance sheet.


Q2: Did you note any key themes?

A2: I think in terms of key themes, they grew their core growth profit by about £8 million in the period, new cars were down along with fleet and commercial but the used cars performance was very strong and there was a £2.5 million delta there on gross profits at group level and aftersales was phenomenal as well, that was at £8 million delta.

So, the strategy is very much lead by used and aftersales where they continue to execute very well.

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Q3: I’m guessing all these changes has an impact on your forecasts?

A3: We have tweaked our forecasts, we’ve had a look at the detailed performance etc. and we’re raising our revenue forecasts and really that is to do with slightly better volumes in used but also prices of vehicles have increased quite a lot so we’ve factored that more into our forecasts.

At the EBIT level, it’s pretty minimum, about 1% or 2% up on where we thought it would be but we’ve also factored in higher interesting stocking costs due to higher activity levels, that does negate that slightly. However, the impact on earnings is about 2.5% for 2020 and that’s marginally due to a slightly lower caps charge and also given the cash performance that we talked about, we now expect overall net debt of about £4 million for this year including the stocking loans. If we adjust that out, Vertu Motors would actually have £20 million of cash on the balance sheet at the moment which I think is a very strong place to be.


Q4: Finally, how do you view the company in terms of valuation at the moment?

A4: We think the long-term valuation is compelling so it’s trading on a PE of around 6 times at 2020 forecast and EV/EBITDA of 3.5 times but again, if we make that adjustment for used car stocking loans, the EV/EBITDA goes below 3 times which we think is extremely low at the moment.

You’ve got a dividend yield approaching 5% as well and you’ve got a significant asset-backing in this business so NAV per share is 45p and intrinsically, we believe based on the research we’ve done that the intrinsic value per share is around 77p.

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