# Vertu Motors PLC A robust AGM trading update

- Link: https://www.directorstalkinterviews.com/vertu-motors-plc-robust-agm-trading-update/412732607
- Published: 2017-07-26T07:23:10+01:00
- Author: Giles Arbor

**Vertu Motors PLC** (LON:VTU) has delivered a robust AGM trading update despite
clear signs that market conditions have softened in new car volumes and used car
margins. The balance sheet remains extremely healthy, and there is significant capacity
to maintain its consolidation strategy if the right opportunities arise alongside
a share buyback progarmme. We are maintaining our forecast assumptions at this juncture(
albeit September trading remains key), and continue to believe Vertu remains well
positioned to deliver strong growth over the medium term.

**AGM trading update:** Vertu has delivered a robust trading AGM update for the 
four months to 30 June 2017, despite market conditions clearly softening from a 
record Q1 2017. Private new car registrations were +4.4% in March, with new car 
registrations currently running at -6.1% during the trading period. Pricing disciplines
and cost control (this was key across all areas of the business) has helped to offset
softer trading conditions caused by the pull forward of orders into Q1 due to Vehicle
Excise Duty, the impact of sterling depreciation on new car pricing and general 
UK consumer uncertainty. During the period to 30 June 2017, the Group is expected
to deliver higher profits YOY vs. what was a strong comparator last year.

**Key trading themes:** Aftersales LFL revenues and profitability have continued
to increase during the period, and this is testament to its well-executed and long
standing customer retention strategies. New retail sales volumes have softened as
seen across the wider market, while used vehicle margins have also been softer “
reflecting a downturn in consumer confidence from April onwards.” This is a consistent
message we have been seeing across the retail sector at present (DFS profit warning
a recent example), with the softness in used car margin more pointed towards premium
franchises, which is consistent with the trading update from Marshall Motor Holdings
on 4 July. Acquisition opportunities continue to be assessed, albeit within the 
confines of its consistent valuation criteria to ensure future returns. The balance
sheet remains extremely strong despite the significant investment undertaken across
the franchise in recent years, with the Group also actively engaged in the disposal
of two freehold assets that could yield further cash proceeds in excess of £7.0m.
The Group is also seeking authority to undertake a share buyback progarmme initially
up to £3.0m, and we believe it has significant capacity to do so alongside its consolidation
strategy.

**Forecasts:** We are maintaining our forecast assumptions for Vertu Motors PLC,
which remain at the cautious end of the consensus range. Trading conditions in September
will remain critical in how the FY outturn plays out for FY 2018, and is coming 
back off a Q2 -16% reduction in private new car registrations according to SMMT 
data.

**Investment view:** We believe the valuation is compelling with Vertu trading at
a c20% discount to its UK peers on an EV/EBITDA and EV/EBIT basis and c10% on a 
P/E basis. The shares also continue to underperform its peer group. We believe this
is at odds with its strong, cash rich and conservative balance sheet (used car stocking
loans are shown as debt rather than creditors) with forecast net assets per share
in excess of 60p per share. We believe the shares have been oversold and remain 
well positioned.

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