Vertu Motors Share Discussion Threads

[thetiger] 01/6/2022 07:49

Redrow? Share price was below NTAV before provision for cladding. May still be.

[microscope] 30/5/2022 11:03

Thanks for that, excellent read. It's always climbing that 'wall of worry' with businesses of this size because any poster can find something to be negative about, however small in the bigger picture.And I think Paul's conclusions are excellent, not off the scale profits like last year but still way above the norm, for example. That's actually something I've been saying for some time, I can see no reason for their marketplace or margins to remain other than very strong in the foreseeable future.Incidentally not just this sector, I asked sometime ago if anyone could come up with another business of a comparable size below NTAV, and so far no answers.

[daneswooddynamo] 30/5/2022 09:19

Totally agree and thanks for posting that excellent summary. The dealers will be nicely baled out by the margin story/tight supply as economic conditions weaken. Constellation has lookers locked up, competition concerns allowing, and Hedin will snaffle pendragon ( I see they are inching towards 29.99 today ) leaving vtu as the only quoted dealer group of any size ( and probably the best run/ best balance sheet)

[davebowler] 30/5/2022 08:02

Paul Scoot from Stockope dia-
Here are my notes from today’s webinar - which contained some interesting additional points.

So NB below is not a comprehensive report (you need to watch the webinar yourself for that), it’s just some key additional points which I noted down, in particular if they were new facts to me.

Long-serving CEO Robert Forrester, since group founded in 2006. He comes across as very (maybe too?) charismatic, rational, and forward-looking, on top of the detail too. So a thumbs up from me for management quality.

Strong tailwinds, 7 upgrades in FY 2/2022 (but obviously profits not sustainable at that level)

Only 900 cars sold purely online. But many more sold via deposits placed online, then subsequently purchased. 75% of customers want to test drive before buying.

Net tangible asset value (mainly freehold property) is 66.8p. This includes the pension surplus. In Q&A, asked whether this is a realisable asset? CFO replied yes, otherwise she wouldn’t be able to put it on the balance sheet, and the pension scheme was “no cash call on the business”. I didn’t know that, so maybe we should include pension surpluses within NTAV in future? More digging needed on this point.

I can’t think of any other car dealer chain that is trading below NTAV, as VTU is.

I queried if freehold property is worth more or less than book value? CEO replied that freeholds are in the books at cost. He doesn’t know what their market value is, because he’s focused on generating returns from them. Although I felt he was hinting they’re definitely worth more than book value, but not clear how much. Freehold property disposals have nearly always been at above book.

Strategy is growth - more expansion in the pipeline.

Multi-franchise (e.g. 4 brands from one site) is more efficient than large, single franchises.

Relationships with manufacturers - have to plan 5-10 years ahead. Mentioned Toyota as a good prospect. Close liaison with manufacturers. Can build better shareholder value by creating new sites, than buying existing ones.

Vertu has never lost money, not even in 2008 financial crisis, nor covid.

Govt support reduced to £6.6m, nearly all business rates relief.

Click-to-drive is an online sub-brand, doing well. Showed us advertising on a racing car. Creating other supporting businesses, eg a van online retailing business, and a parts business.

How to make huge profits? Sell less (sic) cars! Previously the sector was over-supplied, causing margin destruction. Tight supply set to continue - could be up to 4-5 years for used cars. This is a good thing, as tight supply = more profit.

Ukraine - is a big parts manufacturer, especially wiring looms. Very surprising that manufacturers became so reliant on key components from Ukraine.

Manufacturers have responded by reducing production of mainstream models, prioritising higher margin top end vehicles. Hence why secondhand car prices rose so much, as limited supply of both new & used cars. Bizarre situation, which drove up used car prices 25-30%.

Last 3 months more normal - used car prices falling c.2% per month.

Used car volumes have dropped 10-15%

Order books (for new cars) still at record levels.

Stock turn - at Vertu is fast, at 35 days. This is a competitive advantage, because VTU is now selling cars it has bought recently at lower prices, whereas competitors with more stock are having to discount cars they paid more for.

Gross profit on used cars rose from £1204 to £1,740, main driver of bumper profits in FY 2/2022.

Cinch/Cazoo are spending hugely on advertising. But customers still like the franchised dealers - and 75% want a test drive.

IT - Vertu has 50 in-house IT developers, so a lot going on.

Online “concierge service” is doing well, sold 400 cars so far (where browsing customers that drop out are nurtured back in).

Aftersales (e.g. servicing) will decline, due to lack of new car sales.

Cost discipline - as lots of suppliers are raising prices (i.e. for non-cars), then danger is we just accept price rises, and don’t challenge them or shop around.

Energy costs - a lot of work being done here (not explained what!)

Good start to current year, as in the RNS results, with Mar & Apr 2022 about level with last year, around £19m profit.

Consumer confidence - way too early to say. Noticed that some prospective buyers are mentioning reduced monthly payments as important.

I asked whether staff costs could be reduced again, in a downturn? “We’re no longer in control of staff costs”, due to minimum wage rising. We do have flexibility on staff numbers. Have 400 vacancies currently (implying could freeze recruitment if necessary). Also I noted from the slides that sales staff are getting performance-related pay, so there must be some flexibility in there. Typically each salesperson sells 120-150 cars p.a. (so about £200-250k gross profit per person, pretty impressive).

Good case for share buybacks, but main focus is on deploying capital to achieve high returns.

Acquisition of new sites - tight supply, only 2% nationally are empty.

Closing remarks were the most interesting, e.g. -

Industry is seeing emergence of “mega groups”. We need to grow, or end up in a mega group, “otherwise we won’t have a future”. CEO has a tendency to hyperbole sometimes, but I think it’s becoming clear that VTU is likely to be taken over by a bigger group.

Q&A - what is his attitude towards any bid approach? Would weigh it up, and if at a decent premium, would have to consult shareholders.

Financial buyers tend not to be interested in the sector, since manufacturer consents are very important if transferring business ownership - good point, that I think a reader here once mentioned in a comment.

My opinion - the interesting thing is that demand is still above supply at the moment (long waiting lists). This suggests to me that even if consumers do rein in big ticket spending, it might not have as much impact as we imagine? Supply is expected to continue to be constrained, in both new, and (knock on effect) used cars. Hence I think car dealers could surprise on the upside, with profits obviously falling from insanely high levels in 2021, but maybe to still above normal in 2022, possibly, who knows?

A very interesting share, and I remain of the view that priced well below NTAV, the price looks wrong to me, even if you factor in earnings falling by half or more.

Takeover bid very likely, in my opinion.

[microscope] 26/5/2022 16:20

From my post on 13th, when just above 50p.'Looks a nice gap up to about 58p, which hopefully can be filled fairly quickly. Would still be a long way below NTAV.'Hope you were keeping up, pelmet ;).

[tomps2] 17/5/2022 07:01

Vertu Motors (VTU) Full Year 2022 results presentation - May 2022

Vertu Motor’s CEO, Robert Forrester & CFO, Karen Anderson present the full year results for the period ended 28 February 2022.

Watch the video here: www.piworld.co.uk/company-videos/vertu-motors-vtu-full-year-2022-results-presentation-may-2022/

Or listen to the podcast here: piworld.podbean.com/e/vertu-motors-vtu-full-year-2022-results-presentation-may-2022/

[pj84] 13/5/2022 23:25

Vertu Motors is cheap, says Liberum
Car dealership Vertu Motors (VTU) is cheap especially given its consolidating strength, says Liberum.

Analyst Sanjay Vidyarthi retained his ‘buy’ recommendation and target price of 100p on the stock, which was trading down 7.1% at 48.5p on Thursday afternoon, undoing gains from the day before.

The group delivered ‘very strong’ 2022 results, with profit before tax 7% ahead of Liberum’s estimates.

‘[The 2023 financial year] has started strongly, with the bulk of gross profit growth coming from new cars as the used car market starts to normalise,’ said Vidyarthi.

‘Trading profit in March and April of £19.1m is flat on last year, which we think provides a firm underpin to our cautiously set 2023 profit before tax [estimate].’

The analyst said the ‘strong management team and balance sheet’ means Vertu remains ‘well positioned to consolidate the market’. He added the shares look cheap on the basis of expected 2023 earnings, supported by a 4.1% dividend yield.

[m_kerr] 13/5/2022 21:34

i tend to agree with that, tole. an asset based valuation provides underpinning to the shares, suggesting a minimum price of 66p. even loss making dealers tend to go in excess of freehold value, so why the market ascribes a 25% discount to the net tangible assets here (freeholds are in the books at cost) is beyond me.

most 'asset backed' low return businesses like this are leveraged up to generate a decent return on equity. this must be one of the few to be in net cash, leaving full borrowing capacity on the table. low gearing, and property being persistently undervalued usually ends up with a takeover.

[tole] 13/5/2022 17:13

https://masterinvestor.co.uk/equities/small-cap-catch-up-macf-bms-vtu-and-cto/Vertu Motors (LON:VTU) – supply shortages continue but shares still look cheapNow with some 160 sales and aftersales outlets, this group is one of the UK's biggest automotive retailers.It had a cracking year to end February 2022, with adjusted pre-tax profits leaping from £24.6m to £80.7m, on the back of a £3.61bn revenue.However, this current year could well see profits being just over 40% of the 2022-year figure.Analysts Mike Allen and Rachel Birkett, at the group's brokers Zeus Capital, estimate profits of £35.4m on £3.68bn sales, worth 7.5p in earnings per share.Shortfalls in the supply of both new and used vehicles are likely to continue for some time, with production hassles not helping.But it has to be stated that this group is well placed with a strong balance sheet and management.Over the next few years both sales and profits will improve again.Its shares, which hit 75.8p in January this year, are now back to 48.5p and undervalued.Its AGM is due to be held on 22 June, by when we could see its shares rising again.

[microscope] 13/5/2022 14:06

Looks a nice gap up to about 58p, which hopefully can be filled fairly quickly. Would still be a long way below NTAV.

[shauney2] 13/5/2022 07:32

Hang on lol you said tank and 35p on results day.

[my retirement fund] 13/5/2022 07:01

Director top up just shy of 51p

[purplepelmets] 12/5/2022 22:20

i will also at 40p. think we will get them this month

[my retirement fund] 12/5/2022 14:42

If it hits 40p I may have some

[sunshine today] 11/5/2022 12:56

“Supply shortages are likely to remain a key feature of both the new and used car markets well into 2023 in our view.”


Why would you think the used car market is going to be in short supply for another year.?

It would not surprise me if 15% of two car families dumped the second car, and another 5% of the population sold their single car.

[johndoe23] 11/5/2022 12:50

Excellent write up by Paul Scott this morning in his stockopedia column

[microscope] 11/5/2022 09:23

Thanks Dave. On any metric 50p seems to me a substantial undervaluation. March and April are always significant trading months in fairness but a little bit of maths.19.1 million trading profit for these two months, just under 358 million shares in issue so they've already made about 5.3p per share.So 7-8p EPS, for just the first six months, now seems very achievable.

[davebowler] 11/5/2022 09:12

Zeus-
Cost, conversion, customer experience

FY22 results are 8% ahead of Zeus underlying PBT forecast despite upgrading seven times during the year. While we anticipate tougher market conditions and are mindful of falling consumer confidence, Vertu has started the new financial year well, and we believe their key priorities of cost management, conversion and customer experience will put them in a good position of continued market outperformance. The shares remain significantly undervalued and we maintain our forecast assumptions for now.

¨ FY22 results: Vertu has delivered a record set of results to 28 February 2022. Underlying PBT (ex share based payments, impairment charges and amortisation) of £80.7m was ahead of our forecast of £75.0m that was upgraded seven times during the financial year. Revenues were 5% below our forecast but +18% YOY outperforming a market which became increasingly supply constrained. The gross margin performance of 12.0% was 60bps better than our forecast and 110bps ahead of FY2020 (pre-pandemic). Net tangible assets per share was 66.8p, reflecting its strong asset base, net cash position and cashflow generation. It also includes the ongoing share buyback programme, which saw 9.8m shares repurchased at a value of £6.0m during the year.

¨ Key drivers: The core gross profit movement of £54.8m since FY20 has been clearly driven by the unprecedented strength seen in the used car market during the period. However, ongoing progress was also made in new vehicles, that saw well documented volume supply challenges. Growth in aftersales was also driven by parts and accident/smart repair. Operating cost increases have been evident, driven by labour, as well as long term investments in marketing and IT. However, this has been more than offset by margin strength as the Group continues to balance volume pressures and higher GPPU to great effect.

¨ Outlook and forecasts: Supply shortages are likely to remain a key feature of both the new and used car markets well into 2023 in our view. While this is underpinning values and margins, the ongoing decline in consumer confidence cannot be ignored and is likely to have some impact as we progress through the year against increasingly difficult prior year comparatives. Management will be focused on operational excellence around cost, conversion and customer experience to help offset such pressures. We are maintaining our FY23 and FY24 EPS forecasts, which incorporate the estimated impact of the buyback programme, although tweak our trading assumptions namely by reducing revenues and increasing margins.

¨ Valuation: Our valuation per share is 100.2p. This does not include the upside potential from M&A or Vertu’s undervalued ancillary businesses. At 6.4x P/E, with strong cash generation and asset backing, Vertu shares are considerably undervalued, in our view.

[fun der mental] 11/5/2022 08:49

Nice update, good business, good management. The market will pull this down further though - looking to buy in the mid-30s.

[microscope] 11/5/2022 07:42

One other point, they also mention that 1.9 million of the buyback is unspent, and that they believe in buying back shares below NTAV (66.8p).

I think it's reasonable to anticipate these buybacks will continue as long as the share price remains in this area, and that even by itself should underpin the current price.

Great entry level here imho!

[ntv] 11/5/2022 07:28

I am sticking with my losing position here but now with a stop/loss
There appears to be reasonable prospects
At the moment, dealers don't appear to need the extra volume to make the improved profits as they seem to be able to maintain the margins
I can't see that changing and if anything might even improve slightly
Strong balance sheet here
Like microscope I see value here

[microscope] 11/5/2022 07:09

Looking forward to possible broker upgrades and possibly media comment. Also next editions of IC and shares mag will hit the stands in the next few days.

I think brokers were going for about 5-6p a share, already done a major chunk of that, in two months! ;)

Haha, you're probably right, I may not be the sharpest, but on the plus side pelmet I haven't had three companies get suspended on me this year :)

[purplepelmets] 11/5/2022 06:55

ah bless you Mic, not the sharpest tool in the shed are you matey?! Let's see what the market has to say about it hmmmkay..

[microscope] 11/5/2022 06:47

Abundantly clear trading remains extraordinary, profit for first two months of the new year profit 19,1 million, almost same as last year's 19.2 when coming out of lockdown.

Net tangible asset value by itself of 66.8p yet a share price below 50p is insanity imho.

If they were heavily loss making it would be understandable perhaps!

Dividend over 1p a share so yield warming up too.

They said pretty much the same last year (and pretty much every year) about outlook depending on consumer confidence, as it always will in this sector. And delivered a stunning final profit.

Final icing on the cake net cash position now too.

Well done VTU!

Predictable same old rubbish from rhymes with helmet this morning :))