Vertu Motors Share Discussion Threads

[microscope] 03/5/2022 14:26

Results on the 11th, and I'm sure they'll say what they said last year, ie trading is great but this that and the other might happen.

None of the caveats did occur last year and I can see supply chain constraints continuing to squeeze margins higher for VTU for a while yet.

I'm anticipating a boost to the share price when they announce what they have flagged up as stellar numbers.

[fun der mental] 29/4/2022 20:05

Hi everyone

Would be interested to hear thoughts on this as have been trying to get to grips with the business given it looks good value at present.

The business has clearly had a bumper year and consensus seems to be the earnings will drop off next year. I do agree with @elsa7878 above that continued chip shortages could well keep used car prices up, however we are heading into a period of macro-economic uncertainty with a high probability of a recession - who knows what will happen then... Will people still be buying or running their current cars for longer? Have the lockdown savers spent their disposable cash? I noticed Vertu have been increasing the ratio of used stock to new stock over the last couple of reports.

There is a lot to like about the balance sheet. The only bit I'm struggling with is why accounts payable is so high. I found a note in the last annual report to say they include the future cost of vehicles they have previously sold and contractually agreed to buy back at a specified price and date (a scheme they should do well out of given used car prices have inflated at a higher than expected rate). But this can't be all of it - it's 27% of their cost of operations! Must be contracts to buy vehicles from suppliers that haven't been fulfilled yet?

The one other point I'm struggling with is it looks like there could be an imminent change in their business model. This was talked about briefly in their last annual report:

"The Board notes that it is likely that the next few years will see an evolution of the business model with regards to the sale of new cars in certain franchises. The Group undertakes sales in a number of franchises on an agency basis in the fleet market and anticipate that a number of Manufacturers will move new retail sales an agency model in the next few years. It is envisaged that such a move would reduce reported revenues, increase reported operating margins and reduce working capital investment. The Board will keep shareholders updated on developments in this area."

My understanding that, in this shift from a wholesale business model to an agency model, dealerships will no longer own the stock in their showrooms, but rather they will be a physical touchpoint between the manufacturer and the customer. The dealerships role would be to sell the vehicles on the manufacturers behalf in exchange for a commission. As Vertu have said, this shift will clearly affect the financials. This clearly would not affect their used car sales. This does add uncertainty for me though as there is no track record of how this is going to work out. They have built relationships with more manufacturers though which can only be a good thing!

I like the management, I like their focus on technology (they seem to have made more technological progress than their closest competitors) and this should also put them in good stead to handle the transition above.

I have run a DCF valuation based on a more normalised FCF figure (an average of the last 3 years) and got a fair value of around 67p per share. This gives me a reasonable margin of safety but unless I can get a better understanding of my concerns above, may wait to see if that margin of safety increases over the next 6-12 months!

[elsa7878] 29/4/2022 08:37

Interesting that the CEO of Hertz on the conference call said last night that chip shortages were expected to last until 2024 to some degree. Should keep 2nd hand car prices up.

[m_kerr] 26/4/2022 20:38

the investment market for car dealership freeholds has been very buoyant. the huge profits generated through the pandemic has resulted in much improved credit metrics for the dealers who occupy the premises. in addition, from 2013-18, dealerships increased in value by around 20%. all providing good underpinning given the near £250m in net book value of freehold property here.

note that the above figure does not include any valuation uplifts, the property is held at cost. i don't think it's fanciful to say the property here could be worth well in excess of £300m now.

[the anarchist] 25/4/2022 15:15

MCap of £185m and FY pre-tax profits due to be announced of at least £75m tells me that VTU is seriously undervalued. I'd originally thought a share price of 75-80p was reasonable, and with the balance sheet being what it is with virtually no downside risk, I'm topping up at current levels.

[microscope] 25/4/2022 11:21

Trustpilot is invariably a moaners' paradise.Glad you've had a change of luck here anyway pelmet, must make a change after buying into three companies that have been suspended :(((Infact your presence here would concern me, given that degree of misfortune, but VTU has the strongest balance sheet imaginable, so even your curse won't stop this one.

[bigbertie] 21/4/2022 12:07

News item today says Tesla sales soaring despite higher sales prices. This suggests it will be vital for garages to be able to source, sell and service electric vehicles. I'm not sure how the major UK garage chains compare in this respect......

[podgyted] 21/4/2022 01:26

Its very noticeable that when the BB stops the share price collapses.

No doubt if you contact RF he'll say it's because VTU is in a closed period - this is an invalid argument as they could give total control to the broker and then closed periods are irrelevant - they are therefore managing the BB and so when they stop uncertainty reigns.

Rookie error.

[m_kerr] 17/4/2022 15:39

one final point - the CEO here does have skin in the game - over £4m in stock. and there's no big shareholder here, it's mostly institutional holders, the largest holding just 7%.

on price, any offer would clearly have to be in excess of NAV, so it would have to be minimum 50% premium, and at the price the CEO would be in line for in excess of £6m.

[kenmitch] 16/4/2022 17:31

Excellent post m_kerr and I agree with all of it. I ticked your post but as usual it didn’t register.

[m_kerr] 16/4/2022 16:39

£75m adjusted pre tax profit is clearly unsustainable, but the asset backing (well over £200m of freeholds), plus potential takeover premium (marshall's already taken over, lookers 20% stake by the same buyer, pendragon recent offer) make this one where there's very low downside risk (permanent loss of capital), and potential huge upside. the online start ups (cinch, hey car, cazoo) need cars for customer choice. vertu is an obvious buy 0 it has thousands and thousands of used cars on the books, high freehold ownership, and no pension deficit.

it still trades at below NTAV, yet dealerships that are reasonably profitable are clearly worth far in excess of freehold value, as evidenced by multiple acquisitions and disposals. and as plots of land for alternative use potentially even more depending on the geography (e.g. lookers sold a london asset for potential logistics use, for £28m, NIY of 4%).

as was the case with morrisons, at the current share price, a purchaser can borrow the whole purchase price and still have interest cover of at least 3 times conservatively. it's gone up a fair whack in the last year or two but it's still very cheap.

[microscope] 13/4/2022 13:53

Make it they've bought back about 1.8 million shares. At an average of 64p (estimate) that would be about 1.15 million.

So plenty ammo still to fire to reach the 3 million pounds full buyback.

Hopefully will help underpin the shareprice from here on.

[daneswooddynamo] 12/4/2022 16:12

It’s just a sharp downturn in market sentiment to reflect the upcoming weaker consumer environment and investors taking risk off the table and profits where they can. Lookers and pendragon also a bit lower

[microscope] 12/4/2022 13:14

Difficult to say given tnav will almost certainly by itself be well above shareprice.Think they're shaking the tree as hard as they can ahead of what have been flagged up by the company as stellar results.

[ntv] 12/4/2022 08:47

Any thoughts on recent price fall anyone?

[dangersimpson2] 07/4/2022 14:39

All risks, and why no-one should be counting on these exceptional profits lasting into 2023. However, they have gone on longer than anyone would have imagined 6 months ago.

I think it would also be daft to assume the dealer model looks similar today even 5 years hence, which is why buying something like lookers with its 20-year leases in some cases, may not turn out to be a wise move. That said the takeover trend has certainly favoured the likes of Marshalls where they have already hived off most of the property part. Obviously makes the takeover easier but seems a bit daft to me since if you can buy the business for the value of the freehold property then you could do the sale and leaseback yourself and get the operating business for very little.

[tony_penny] 07/4/2022 14:30

JUST A THOUGHT COULD CAZOO SNAP UP VTU

[sunshine today] 07/4/2022 12:51

Just be extremely careful that you stock ( cars ) that have been going up in value for years, don’t suddenly fall of a cliff.

The gas guzzlers will not be shifting today, ( as they were ).

You only need one national company to dispose of its inventory over a few weeks at a discount and it’s game up.

Also watch for the tipping point, let’s say prices fall for two months in a row, that alone will hurt sentiment.

Finally inflation is killing the working man, and less well off pensioners.

That’s why the share price here is not a quid despite all the assets, and profits.

Good luck

Just my views.

[dangersimpson2] 07/4/2022 12:44

Not really Vertu's style. More likely to acquire small unlisted independents that are marginally profitable and transform their systems and processes to make them profitable, than pay over the odds for a listed competitor.

£229m of freehold property vs a £215m market cap perhaps puts them at risk of being the other side of a corporate transaction, though.

[microscope] 07/4/2022 12:22

Could VTU emerge as a left field bidder for PDG (or, less probably, Lookers)? I don't see it myself but they could make an offer for Hedin's stake I guess. A full bid might have to pass monopolies' scrutiny.

The buyback has surprisingly dried up for now, which at least makes me wonder if some form of corporate activity is in the offing.

And might have encouraged large holders to have sold in recent days if they suspect something is indeed in the air.

[daneswooddynamo] 07/4/2022 11:25

Not really, sector is a bit weaker I guess and vtu had been pushing up a bit. The current market value of vertu is less than motorpoint, I certainly find that a bit perplexing! Buying more vtu every now and again

[lewaus97] 07/4/2022 11:17

Any thoughts on the drop?

[tole] 27/3/2022 16:07

https://www.fool.co.uk/2022/03/27/5k-to-invest-a-cheap-penny-stock-id-buy-to-hold-to-2032/£5k to invest? A cheap penny stock I'd buy to hold to 2032!I'm looking for the best penny stocks to help me make solid returns over the next decade. Here's one on my radar today.Royston Wild?Published 27 March, 12:51 pm BSTVTUHand holding pound notesImage source: Getty Images.There are plenty of top shares out there to help me make mammoth returns over the next 10 years. Heres one dirt-cheap penny stock I think could make me a fat stack of cash.A top electric vehicle-themed stockI think profits at Vertu Motors (LSE: VTU) could soar over the next decade as demand for electric vehicles (or EVs) takes off.Sales of these low-carbon vehicles are certainly rocketing right now. Latest industry figures showed that battery and hybrid vehicle sales in the UK leapt more than 120% year-on-year in February. And last week the government announced plans for 300,000 charging points to be available by 2030 in encouraging news for the industry.This would be 10 times the current level and could bolster EV sales still further. Concerns over range and ease of charging continue to influence the buying decisions of many people.Vertu Motors operates more than 150 dealerships across the UK and sells product from most of the world's leading carbuilders. It therefore has significant revenues potential as demand for low-emissions vehicles booms (today it sells nine out of 10 of the country's most popular EVs).Threats to Vertu MotorsMy main concern with buying it today is the threat of sinking revenues in the near term. This penny stock is highly sensitive to broader economic conditions so the current cost of living casts a shadow over it. The company also faces the threat of prolonged stock shortages as weak semiconductor supplies persist.Latest figures from the Society of Motor Manufacturers and Traders (SMMT) showed car production in Britain tanking 41% year-on-year last month. This was the biggest February fall for some 13 years.Problems could get even worse too if Covid-19 cases in China keep rising and chip manufacturing is hit.Why I'd still buy this penny stockThat being said, as someone who invests with a long-term view I'd still buy Vertu Motors today. The stock isn't without risk. But this is the same with any UK share and I think the car retailer could deliver delicious shareholder returns over the next decade.Besides, at current prices I think Vertu Motors could be too cheap to miss despite those aforementioned threats. The retailer's share price has slumped around 15% from January's multi-year highs. This leaves it trading on a forward price-to-earnings (P/E) ratio of 8.8 times for this fiscal year (to February 2023). This is well inside value territory of 10 times and below.Vertu Motors also offers plenty of punch from a dividend perspective at recent prices of 64.4p. A predicted 2.3p per share full-year payout results in a chunky 3.3% dividend yield.And what's more, this anticipated dividend is covered 3.5 times by expected earnings, well above the widely-regarded security benchmark of two times. This gives me confidence that Vertu Motors should make this estimated dividend even if conditions in the UK car market worsen considerably in the near term.

[microscope] 22/3/2022 13:01

Spot on Daneswood, my view too. Results tomorrow from PDG and having already reportedly rebuffed a bid, I'd imagine more news on that front too. LOOK has been notably strong too in recent days suggesting more corporate action could be imminent.That would leave VTU as the leading independent, and I think the suitors have been looking elsewhere because they know that they'd have to pay a substantial premium for VTU given the powerhouse balance sheet.So it's understandable that the others are being taken out now, and then I believe they'll then turn attention this way. At that stage we could have a real bidding war.All imho :)