- Used car affordability a headwind
- Retail and wholesale volumes down double digits
- But net cash pile builds
Shares in Motorpoint (MOTR) skidded 6% to an all-time low of 73p after the used car retailer lurched into loss for the half to 30 September 2023 as high inflation, rising interest rates and consumer uncertainty continued to affect demand for second hand cars.
Yet house broker Shore Capital sees ‘emerging light at the end of the tunnel’ for the Derby-headquartered company, which has taken decisive actions to right-size its business to withstand tough market conditions.
IN A SPIN
First half results from the nearly-new car purveyor were in line with previous guidance, with total sales tumbling 23% to £607.2 million and Motorpoint moving from pre-tax profits of £3 million to losses of £3.7 million.
The deficit reflected weaker UK market demand with high prices for the good quality, nearly new vehicles Motorpoint sells in short supply and rising APR rates hurting customer affordability, not to mention a higher finance bill for the company triggered by higher interest rates.
Amid tougher economic conditions, motorists are choosing cheaper vehicles, as demonstrated by the double-digit drop in retail and wholesale volumes seen in the half as well as a 26% slump in online sales.
TURNING A CORNER?
However, Motorpoint expanded its retail criteria to cars less than five years old and 50,000 miles towards the end of the period, ‘to help customers find the right vehicle in accordance with more constrained household budgets’.
And decisive cost-cutting and margin enhancement actions to right-size the business to ‘withstand a potentially extended depressed market’ resulted in a modest operating profit before exceptionals.
Management’s focus on cash conservation drove a reassuring £6.7 million year-on-year increase in net cash to £11.2 million, while management stated that the wholesale price of used cars has fallen 6% over the last six weeks, a correction that should be beneficial in the medium to longer term.
As CEO Mark Carpenter explained: ‘The rapid fall in used car values since the period end is unquestionably a near term challenge, however it also provides reassuring signs of supply finally beginning to improve in the nearly new market that we have dominated in the past. I believe next year will be a key turning point for the market and I look to the future with confidence.’
BROKER VIEWS
House broker Shore Capital commented: ‘We see signs of light at the end of the tunnel for Motorpoint in the current cycle, noting the first sign of a correction in used vehicle prices, the accelerating introduction of new vehicles into the market (post a multi-year hiatus), signs of an opening of the lease and hire carpools and growing confidence that the UK interest cycle (and so the cost of money) has peaked.’
The broker added: ‘We believe Motorpoint has a model and strategy, and an experienced management team that can prosper as the UK used car market normalises and have growing confidence in the future.’
Numis said: ‘Medium-term, the increased supply and lowering interest rate expectations is increasing visibility in market volume recovery, with Motorpoint well-placed to capture share and deliver operating leverage. With forecasts unchanged, we reiterate our “buy” recommendation and 180p target price based on a degree of recovered earnings on which we have increasing confidence.’
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