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

- Link: https://www.directorstalkinterviews.com/vertu-motors-plc-qa-zeus-capital-lonvtu/412734856
- Published: 2017-09-07T11:11:45+01:00
- Author: Amilia Stone

**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: Now, Vertu Motors, they’ve just released a pre-close trading update, can you
talk us through the highlights?**

**A1**: I think the main issue on this statement was that they’d sold one of their
freehold JLR sites for a cash consideration of £14 million, they’ve put a sale and
leaseback on it and that compares to a book value of £10 million. We think this 
is quite interesting really because they’ve got freehold property assets worth £
182 million against a market cap of just over £175 million and we think this shows
how conservative that £182 million is on the balance sheet. We wouldn’t expect deals
of this nature all the time but I do think it highlights the inherent value in their
asset base at the moment.

In terms of trading, trading pattern is pretty much as they confirmed in their last
statement so new car market remains tough albeit we do know a number of scrappage
schemes that have been announced recently by brands such as Ford, Vauxhall, Hyundai
and we do expect more to be announced in due course. We are entering a very key 
trading period in September, at the moment, it’s too early to say how that trading
has gone but there appears to be a bit more stimulus in the market at the moment.
Used cars, I think, remains as they say so volumes are ok, a little bit of margin
pressure that they’ve already pointed out and I think we’ll continue to see them
do good initiatives on cost as they’ve got a good track record there, and the after-
sales business continues to be robust as well.

 

**Q2: What can you tell me about your forecast? What assumptions were made?**

**A2**: Our headline trading forecast remain unchanged on the back of this and they
will do until we can absorb how September has progressed and we should get a feel
for that when they announce their H1 results in mid-October. We have reflected the
additional cash into our forecast so we’d expect Vertu Motors to have net cash in
excess of £20 million in 2018 which then puts them in a very strong financial position
as well. So, our forecast assumptions on an underlying basis remain unchanged for
now.

 

**Q3: What are your thoughts on long-term investment and Vertu Motor’s valuation
itself?**

**A3**: I think the shares, and indeed the sector, looks very undervalued at the
moment, there are some near-term trading concerns but Vertu, our numbers, are trading
on a PE to February ’18 of 7 times and EV/EBITDA of just over 4 times, backed with
a dividend yield of over 3% as well. As we’ve said before, the balance sheet is 
very conservative, very asset rich as well which as we’ve seen today, the book value
appears to be conservative so we think the stock does look good value relative to
its peers. It’s on a 20% discount on EV/EBITDA basis and about 10% discount on a
PE basis and I think, given what they’ve delivered to date, the balance sheet and
how it’s set up etc., I think that looks very attractive for long-term investors,
in our view.

Share on: