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Zeus Capital – UK Motor retail sector / SMMT September 2016 data

Zeus Capital to noted that the SMMT (Society of Motor Manufacturers and Traders) has released new car registration data for the key trading period of September this morning. Headline numbers are +2% YOY. Private registrations were -2% within this number continuing the downward trend we have seen in this data since April. Fleet was 7% showing the excess capacity we continue to see in the market, and we believe self-registrations would have been a well-used tactic to arrive at these numbers. That said, we believe this outcome should secure a solid outcome for the UK dealers for 2016, albeit with increasing uncertainty going into 2017.

SMMT data: Data for the key period of September (typically >15% of annual registrations) has been released this morning. New car registrations were +2% vs. a very strong period last year, and marks the highest September on record with the market YTD +2.6%. This is only the second time that the 2m mark has been passed in September since 2004. We view this as a good outcome for the industry, and should secure a good 2016 outcome for most PLC dealer groups. However, We note that private registrations have been negative on a monthly basis since April, and this performance also reflects orders generated many months in advance in some cases.

Mix issues: Within the mix, private registrations were -1.7% with fleet +7.3% and business -14.9% (small volume at 23,008 vs. total registrations of 469,696). Brand performances of note include BMW +10%, Mercedes +16%, Honda +7%, Audi +9%, Land Rover +49% (volume driven by model changes albeit with some pressure on margin) and Jaguar +33%. Elsewhere VW was -14%, Vauxhall was -5% and Ford was -11% as the volume sector continues to underperform, albeit in some cases this can relate to the product cycle.

Outlook: We believe this is a good outcome, and this should ensure the 2016 market ends up above 2.6m albeit with the aid of self-registrations. Looking into 2017 the picture is less clear, and we note the SMMT has recently cut its 2017 by 6% to 2.5m registrations. In a historic context this remains a good outcome, however, we think it is sensible to assume the market falls back from here. Weaker sterling relative to the Euro and Japanese Yen may dictate OEM behavior going into 2017 particularly as hedging strategies start to come away in Q1 2017. A softer new car market is not necessarily a negative in our view, and might help residual values and therefore used car margins over time.

Next scheduled news flow: Vertu Motors Plc (LON:VTU) H1 results 12 October, Inchcape Plc (LON:INCH) Q3 IMS 27th October, Cambria Automobiles Plc (LON:CAMB) FY results 22 November.

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