Marshall Motor Holding — Reaffirming FY18 outlook

Marshall Motor Holdings (LN: MMH)

Last close As at 21/12/2024

394.00

0.00 (0.00%)

Market capitalisation

308m

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Research: Industrials

Marshall Motor Holding — Reaffirming FY18 outlook

Following the release of sharply lower UK new vehicle registration statistics for September, MMH has released a trading update reaffirming its outlook for FY18. At the interims the company had been cautious about the potential supply side disruption caused by the new Worldwide Harmonised Light Vehicle Test Procedure (WLTP) from 1 September 2018. As it had already factored this in, the expectations and thus numbers remain unchanged. The share price weakness in response to the registrations decline appears unwarranted, with a strong yield providing support.

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Industrials

Marshall Motor Holdings

Reaffirming FY18 outlook

Trading update

Automotive retail

11 October 2018

Price

140p

Market cap

£109m

Net cash (£m) at 30 June 2018

0.9

Shares in issue

77.9m

Free float

34.9

Code

MMH

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(12.2)

(12.4)

(18.7)

Rel (local)

(11.2)

(7.0)

(15.9)

52-week high/low

175.5p

141.0p

Business description

Marshall Motor is the seventh largest UK motor retailer, operating 101 franchises spread across 23 brands at 84 locations. It is one of six UK dealership groups that represent each of the top five volume and premium brands. The group has a strong presence in eastern and southern England.

Next events

FY18 results

13 March 2019

Analysts

Andy Chambers

+44 (0)20 3681 2525

Annabel Hewson

+44 (0)20 3077 5700

Marshall Motor Holdings is a research client of Edison Investment Research Limited

Following the release of sharply lower UK new vehicle registration statistics for September, MMH has released a trading update reaffirming its outlook for FY18. At the interims the company had been cautious about the potential supply side disruption caused by the new Worldwide Harmonised Light Vehicle Test Procedure (WLTP) from 1 September 2018. As it had already factored this in, the expectations and thus numbers remain unchanged. The share price weakness in response to the registrations decline appears unwarranted, with a strong yield providing support.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/16

1,899.4

25.4

26.2

5.50

5.3

3.9

12/17

2,268.9

29.1

30.8

6.40

4.6

4.6

12/18e

2,199.1

24.2

24.7

6.75

5.7

4.8

12/19e

2,267.3

24.8

25.4

6.95

5.5

5.0

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Supply side caution was justified

At H118 results MMH noted that the new WLTP vehicle emission testing regime was likely to lead to some supply side distortion in the UK new car market in September and through the rest of 2018. The sharp decline in September registrations, which showed a 20.5% decline, suggest the concerns were justified. Normally the second highest registration month of the year due to plate changes, this was the worst September for registrations since 2011. As a result, H218 profit expectations for MMH were already cautious following a robust H118. The company continues to mitigate the softness in the new vehicle market through cost discipline as well as previous portfolio optimisation actions towards the end of 2017. Used car margins appear healthy, in part due to lower vehicle supply from part exchange and defleeting, and higher margin aftersales activities should also remain robust. As a result, management reiterated its outlook for FY18 overall. Management also reiterated the search for suitable acquisitions, facilitated by a strong balance sheet.

WLTP constraining supply

The WLTP introduction requires manufacturers to qualify many more models than under the previous system, including many derivatives of essentially the same make and model. It would appear to have created a bottleneck and a squeeze on some suppliers, with effects apparent across other major European new car markets in September. SMMT stats for example show VW registrations down 55% and Audi falling 53% in the UK last month compared to a year earlier.. The effects should progressively unwind heading into 2019, just in time for Brexit

Valuation: Recent rating decline seems unjustified

MMH’s share price had softened in advance of last week’s registration figure in part due to downgrades amongst its peer group, but this seems unjustified given the company’s previous caution. On our maintained estimates, the shares trade at a FY19e P/E ratio of just 5.5x with an historic yield of 4.6%.

Exhibit 1: Financial summary

£m

2016

2017

2018e

2019e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

1,899.4

2,268.9

2,199.1

2,267.3

Cost of Sales

(1,678.9)

(2,003.8)

(1,940.7)

(2,000.9)

Gross Profit

220.5

265.1

258.4

266.4

EBITDA

 

 

38.4

46.4

40.0

41.1

Operating Profit (before amort. and except).

 

 

32.3

37.2

31.2

32.2

Intangible Amortisation

(0.3)

(0.3)

(0.4)

(0.5)

Exceptionals

(3.2)

24.1

0.9

0.0

Other

0.0

0.0

0.0

0.0

Operating Profit

28.8

60.9

31.7

31.8

Net Interest

(6.9)

(8.1)

(7.0)

(7.4)

Profit Before Tax (norm)

 

 

25.4

29.1

24.2

24.8

Profit Before Tax (FRS 3)

 

 

21.9

52.8

24.6

24.4

Tax

(4.4)

(3.8)

(5.3)

(5.2)

Profit After Tax (norm)

20.3

23.8

19.1

19.6

Profit After Tax (FRS 3)

17.5

49.0

19.3

19.2

Average Number of Shares Outstanding (m)

77.3

77.4

77.2

77.2

EPS - normalised (p)

 

 

26.2

30.8

24.7

25.4

EP

 

 

25.4

29.8

24.0

24.6

EPS - (IFRS) (p)

 

 

22.6

63.4

25.1

24.9

Dividend per share (p)

5.50

6.40

6.75

6.95

Gross Margin (%)

11.6

11.7

11.8

11.8

EBITDA Margin (%)

2.0

2.0

1.8

1.8

Operating Margin (before GW and except.) (%)

1.7

1.6

1.4

1.4

BALANCE SHEET

Fixed Assets

 

 

326.4

266.6

283.4

290.9

Intangible Assets

122.0

121.6

121.7

121.7

Tangible Assets

204.4

145.0

161.7

169.2

Investments

0.0

0.0

0.0

0.0

Current Assets

 

 

475.2

499.1

466.2

486.6

Stocks

380.0

401.3

373.9

385.4

Debtors

71.0

64.1

61.6

63.5

Cash

0.1

4.9

2.9

8.9

Other

24.1

28.8

27.9

28.8

Current Liabilities

 

 

(584.9)

(539.3)

(508.3)

(524.1)

Creditors

(507.2)

(538.6)

(508.3)

(524.1)

Short term borrowings

(77.7)

(0.6)

0.0

0.0

Long Term Liabilities

 

 

(71.1)

(35.2)

(36.3)

(34.2)

Long term borrowings

(41.4)

(6.5)

(7.7)

(5.7)

Other long term liabilities

(29.7)

(28.7)

(28.6)

(28.5)

Net Assets

 

 

145.7

191.2

204.9

219.2

CASH FLOW

Operating Cash Flow

 

 

98.9

60.8

35.9

36.1

Net Interest

(1.4)

(2.9)

(2.7)

(1.2)

Tax

(17.3)

(3.8)

(5.3)

(5.2)

Capex

(61.9)

(57.5)

(25.6)

(16.4)

Acquisitions/disposals

(91.4)

44.6

0.0

0.0

Financing

0.0

0.0

0.0

0.0

Dividends

(3.3)

(4.5)

(4.9)

(5.3)

Other

(15.5)

80.2

0.0

0.0

Net Cash Flow

(91.8)

116.8

(2.6)

8.0

Opening net debt/(cash)

 

 

27.2

119.0

2.2

4.8

HP finance leases initiated

0.0

0.0

0.0

0.0

Other

0.0

0.0

0.0

0.0

Closing net debt/(cash)

 

 

119.0

2.2

4.8

(3.2)

Source: <Insert Source or Notes>

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Marshall Motor Holdings and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
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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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Marshall Motor Holdings and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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