Marshall Motor Holdings — Update 17 March 2016

Marshall Motor Holdings (LN: MMH)

Last close As at 21/11/2024

394.00

0.00 (0.00%)

Market capitalisation

308m

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Research: Industrials

Marshall Motor Holdings — Update 17 March 2016

Marshall Motor Holdings

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Industrials

Marshall Motor Holdings

A positive debut

Automotive

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18 March 2016

Price

168.5p

Market cap

£130m

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Share details

Code

MMH

Listing

AIM

Shares in issue

77.2m

Business description

Marshall Motor is the tenth largest UK motor retailer operating 76 franchises spread across 24 brands. It is the only dealership group which represents each of the top five volume and premium brands. The group has a strong geographical presence in eastern England.

Bull

Consistent recent trading record

Strong balance sheet with £24m net cash (31 December 2015)

Opportunities stemming from a fragmented market

Bear

Market caution based upon record new vehicle registrations in 2015

Further weakness of sterling may undermine OEM marketing support

Margin pressures related to improved product availability

Analysts

Nigel Harrison

+44 (0)20 3077 5700

Roger Johnston

+44 (0)20 3077 5722

Marshall Motor (MMH) has emerged from its first year as a quoted company with its strong trading record sustained, its growth strategy established and a strong financial position to support management ambitions. We believe that the share price should respond over the medium term, as the market begins to recognise the potential.

Sound growth

Marshall Motor delivered a strong set of figures in its first year as a quoted public company. Revenues increased 13.5% to £1.23bn, with adjusted PBT up 21% from £13.1m to £15.8m. New car unit sales were up 9.9% (7.2% like-for-like), used car sales by 8.2% (1.5%) and aftersales revenues rose 8.5% (2.4%). More significant was a 17 basis point rise in gross margins to 11.8%, in a year when increased vehicle availability led to considerable pressure on margins. Group operating margins widened by 10 basis points to 1.5%, despite the ongoing extra overhead costs associated with the group’s public company status.

Positive medium term outlook

Market conditions remain benign. Management has indicated a good start to the year and, with the added benefit of a full year contribution from last year’s £24m acquisition of SG Smith, the group is looking for materially higher profits in 2016. Vehicle registrations are likely to continue to rise modestly, while industry dynamics continue to favour the larger groups. Investment in downstream used car and aftermarket operations remains the key to organic growth, while there are ample funds available to finance acquisitions. Stripping out the debt directly related to the leasing fleet, the group has net cash of £24m, which can be supplemented from a £75m RCF and a £25m accordion facility. Over the seven years since the appointment of the CEO, UK new vehicle registrations have risen from 2.0m to 2.6m cars while used car volumes have been largely static; over the same period Marshall unit sales have risen by more than 150% from 24,728 to 62,802. The group has the strategy and ambition to build significantly on this progress.

Valuation: Potential not recognised

UK motor retailer shares trade in a close range between 9.3x and 10.2x CY16e earnings and at a c 35% discount to the FTSE General Retail Index. We believe the sector discount fails to recognise the defensive qualities inherent in motor retailing, while the medium-term potential is not recognised in the rating of Marshall shares.

Consensus estimates

Year
end

Revenue
(£m)

PBT
(£m)

EPS
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/14

1,085.9

13.1

N/A

N/A

N/A

N/A

12/15

1,232.8

15.8

15.2*

2.98

11.1

1.8

12/16e

1,420.0

18.6

18.2

4.10

9.3

2.4

12/17e

1,465.0

19.3

19.3

4.30

8.7

2.6

Source: Marshall Motor Holdings; Bloomberg. Note:* 2015 EPS based on year-end capital.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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