Used car retailer Motorpoint (MOTR) reverses 4.2% to 182p on a mixed full year trading update highlighting ‘more modest growth’ in the second half of the year to March 2019 as well as a slight softening in annual gross margins.
The reassuring news for investors is cash generative, dividend-paying Motorpoint still expects to report annual sales growth north of 6%, driven by like-for-like growth across existing sites, as well as a 10% hike in underlying pre-tax profit for 2019.
Nevertheless, analysts are downgrading 2020 estimates on a cautious outlook statement from Motorpoint in which it laments the ‘continued volatile political environment and consumer uncertainty’.
READ MORE ABOUT MOTORPOINT HERE
Second-hand car seller Motorpoint made its stock market debut in May 2016 at an issue price of 200p. The company mainly sells vehicles up to two years old and with less than 15,000 miles on the clock.
Although the shares are marked lower today, broker Shore Capital remains positive on Motorpoint’s ‘nearly new used model, underpinned by a relentless focus on “Choice, Value and Service” and we fully expect the group to continue to outperform the broader auto-retail market over the short, medium and long term.’
The broker is sticking with its 2019 pre-tax profit forecast of £22.9m for earnings per share (EPS) of 18.7p, up from 2018’s £20.8m and 16.8p haul respectively.
It clearly expects the business to be resilient given the myriad challenges facing the car market and a difficult UK political and economic backdrop and a seemingly endless Brexit process.
However Shore Capital has downgraded its full year 2020 pre-tax profit estimate by 11% to £22m for flat year-on-year EPS of 18.7p ‘with slowing momentum and consumer uncertainty remaining a factor’.
It believes this slower momentum reflects reduced footfall across Motorpoint’s sites, with the more mature sites proving more resilient than newer, less mature outlets.
Investors can at least take comfort in the fact Mark Carpenter-steered Motorpoint continues to take market share and has a fortress balance sheet to help it ride out current sector storms; Shore Capital forecasts year-end net cash of £12.6m in the Motorpoint coffers, even after £8.8m of spending on an ongoing share buyback programme last year.
THE EXPERTS’ VIEW
Russ Mould, investment director at AJ Bell, says: ‘Motorpoint’s engine looks like it is coughing and spluttering as trading slows down in the second half of its financial year.
‘The UK car market is awash with stock, giving punters the chance to pick up a bargain and giving retailers like Motorpoint a massive headache. Greater inventory levels will inevitably means slashing prices and thus profit margins will be hit for car sellers.
‘The trick for Motorpoint is to keep turning over stock even if it is being sold at a lower price. However, several analysts suggest footfall has been weaker in recent months, so too converting enquiries to actual sales. Therefore the near-term outlook isn’t great for Motorpoint’s earnings.
‘While unpleasant, Motorpoint’s management will have been through plenty of good and bad times and should know how to keep the motor running.’
Shore Capital adds: ‘Whilst it is disappointing to be downgrading our full year 2020 Motorpoint financial expectations, our more cautious approach is fully reflective of the ongoing political uncertainty and the destabilising impact it is having on consumer spending habits, particularly on larger big-ticket items.
‘With the group’s 13th site set to open in the period Motorpoint remains immature in the UK, it is unrepresented in many areas of the country, so offering the potential for sustained medium-to-long-term growth supported by growing online participation.’
