- Vertu leapfrogs Pendragon to become fourth largest UK car retailer
- Launches further £3 million buyback
- Expects margins to remain strong
Shares in Vertu Motors (VTU:AIM) rallied 5.2% to 45.5p after the cash-generative car retailer reported strong first half results and said adjusted pre-tax profits for the year to next February were expected to beat consensus estimates.
Vertu demonstrated confidence in its future prospects by launching a further £3 million share buyback on top of a half-year dividend increase from 0.65p to 0.7p and appeared cautiously optimistic in terms of the near term outlook.
As charismatic chief executive Robert Forrester explained: ‘Future consumer confidence levels will be key in determining retail vehicle demand and recent government action around tax cuts and support for energy prices give the prospect of supporting consumer demand in the months ahead.’
OVERTAKING PENDRAGON
Despite deteriorating consumer confidence and inflationary cost headwinds, Vertu generated a better than expected adjusted pre-tax profit of £28.2 million for the six months to August.
That was the second-highest figure on record for the group, albeit below the prior year’s super-normal, post-lockdown comparative of £51.8 million.
Sales ticked up 3.9% to the best part of £2 billion as Vertu overtook Pendragon (PDG) to become the UK’s fourth largest motor retailer by revenue.
Gross margins softened by 40 basis points to 11.2% against a tough prior year comparator, which saw unprecedented strength in used car prices and margins.
MARGIN STRENGTH PERSISTS
Forrester (pictured below) said the half saw ‘a strong trading performance with vehicle margin strength offsetting market driven volume shortfalls’ and insisted his charge ‘continues to benefit from its focus on operational excellence around cost, conversion and customer experience aided by continued digitalisation initiatives.’
He also believes the business is ‘strategically very well placed with significant firepower to expand its footprint of franchised dealerships across the UK.’
In the face of dwindling consumer confidence and rising interest rates, Vertu’s trading in September saw a continuation of market trends seen in the first half.
New car, fleet and commercial volumes were subject to significant supply constraints and uncertainty, while volume shortfalls were again partially offset by strong margins.
‘A tight supply environment for new and used vehicles is anticipated to continue well into the next financial year. Margins are therefore expected to remain strong and used car pricing robust,’ stressed Forrester.
BROKER VIEWS
‘We think that the trading environment will remain robust, with cost pressures the big variable,’ said Liberum Capital. Taking into account Vertu’s robust September showing, the broker upgraded its full year 2023 adjusted pre-tax profit forecast by 8.7% to £38.5 million.
‘This leaves our forecasts cautiously set, given the implied second half adjusted pre-tax profit of £10.3 million, versus £30.1 million achieved last year,’ said Liberum, adding that ‘the balance sheet is strong, with estimates full year net cash of £21 million. Management is seeing an increasing number of acquisition opportunities and we expect valuations to become more attractive as market conditions toughen.’
Zeus Capital raised its full year earnings per share forecast by 13% and believes Vertu’s shares remain ‘considerably undervalued’ based on the motor dealer’s ‘significant financial firepower, asset backing and strong execution delivered to date.’
