Another impressive delivery
Vertu Motors Plc (LONDON:VTU) continues to deliver. Underlying pre-tax profits are more than doubled, while the potential continues to be enhanced by recent acquisitions and more to come. Vertu is a strong business, which has demonstrated an ability to gain market share, without conceding margin.
Ahead of estimates
Vertu motors has emerged from another exciting year, with underlying pre-tax profits more than doubled from £8.1m to £17. Progress was delivered in each of the group’s main business areas – new cars, used cars, aftermarket – as the group took full advantage of positive market conditions supplementing the improved operating efficiencies of recent acquisitions. At the interim stage, six months ago, we had been looking for pre-tax profits of £15.8m, raising our estimate to £17.0m following the period-end trading statement in February. The key feature of the year was the first major venture into the premium segment of the market with the £31m acquisition of a highly regarded land Rover dealership group in Yorkshire.
The momentum continues
The current year has started well, with the indication of further acquisitions to supplement anticipated organic growth. Trading conditions remain positive, while the benefits of action to improve the performance of a number of acquisitions of the past two to three years are expected to come progressively through to profits. We have raised our current year underlying pre-tax target from £18.5m to £19.8m and look for a minimum £2.0m uplift in the following year.
Net funds of over £30m
A £50m (gross) equity placing and a strongly cash generating trading year leave the group strongly based to continue its acquisitive ambitions. There were net funds of £31.4m at the year-end, supplemented by undrawn facilities totalling £60m.
Valuation: Discount difficult to justify
On the basis of calendar 2014 prospective earnings Vertu shares (P/E 13.1x) are rated at a small discount to the 13.4x simple average of the other motor dealership groups. In the context of the group’s consistent progress since its inception, the pent up potential of recent acquisitions and the strong balance sheet, we find this hard to justify.
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