Automotive retail and leasing group Marshall Motor (MMH:AIM) has plenty of gas in the tank, if forecast-busting annual profits and a bigger-than-expected dividend hike are a reliable indicator.
Shares in the UK’s seventh largest dealer group motor 4.2% higher to 173.5p as investors also cheer news of a good start to 2017; this is especially reassuring as the Society of Motor Manufacturers and Traders (SMMT) forecasts a 5% decline in UK new car registrations to 2.56m this year.
GAS IN THE TANK
Click here to read the annual results from Daksh Gupta-steered Marshall Motor. Highlights include 60.4% growth in pre-tax profits to a better-than-expected £25.4m and a bumper 85% full year dividend hike to 5.5p, demonstrating the confidence CEO Gupta (pictured below) and no-nonsense numbers man Mark Raban have in the business.
Gupta reports 10.7% like-for-like sales growth for 2016, driven by strength in new and used car sales, up 13.1% and 8.3% on a like-for-like basis respectively, as well as growth in higher margin aftersales.
DEALS DELIVERING
Gupta says last May’s £106.9m strategic acquisition of Ridgeway, building on November 2015’s takeover of SG Smith, ‘was a unique opportunity for significant growth, extending our geographic footprint into new territories and further strengthening our brand partner relationships. We are now the 7th largest UK dealer group and remain well positioned to exploit further growth opportunities.’
While new car registrations growth slowed in the second half of 2016 following the Brexit vote, moderating from 3.2% to 1.2%, Marshall’s performance only strengthened, like-for-like new car sales up 8.1% versus the comparable period in 2015.
‘Following the UK referendum on EU membership and the resultant continued economic uncertainty, the board remains cautious on the UK vehicle market in 2017,’ says Marshall. Yet it adds ‘our order book for the important March plate-change period is, however, encouraging and current trading is in line with our expectations.’
IMPROVING EARNINGS QUALITY
Investec Securities, a buyer with a 240p price target implying 38% upside, points out Marshall’s strategy is driving increased levels of recurring revenue.
Growth in new and used car sales is leading to growing levels of PCP (Personal Contract Purchase) penetration ‘which drives strong customer loyalty through repeat purchase’ and an increased uptake on service plans and warranties, which are ‘helping fuel a larger customer base for high margin aftersales’.
N+1 Singer analyst Matthew McEachran sees fair value of around 285p. He comments: ‘Whilst net debt is in line at £54m, property backing is now £106m (138p/share) and the 5.5p dividend is 14% ahead of expectations. Strategic initiatives are advancing well and recent acquisitions have integrated well, performing at least to plan.
'A full year of Ridgeway should add circa £5m to profit before tax in full year 2017. Although still cautious about New, MMH has had a good start to full year 2017 and like-for-like March orders are up year-on-year.'
