Motorpoint Group Plc (LON:MOTR) has this morning released final results, which are 7% ahead of our forecasts at the adjusted PBT level. The dividend is also ahead of consensus and our forecasts. In addition the cash position is ahead of forecast despite the higher levels of investment that helped drive good momentum in H2. That said, with increasing levels of uncertainty in the economy coupled with dealers likely to increasingly target this market as we progress through the year, we are maintaining our forecast assumptions for now. We continue to favor the dealers at this juncture offering superior asset backing with more diverse business models on discounted valuations relative to Motorpoint.
Final results – Revenue for the year ended March 2017 was £822.0m, which was +12.7% YOY and marginally ahead of the £820.0m flagged in April and 2% ahead of our forecast. Gross profits grew 11.7% YOY in line with revenue growth and at £62.2m was marginally ahead of our £61.6m forecast, with margins static YOY at 7.6%. Within this “motor related services and commissions” were growing at 21.3% and again ahead of our forecasts. Adjusted operating profit was down 9.1% YOY at £16.9m but 7% ahead of our £15.8m forecast. The YOY reduction was driven by increased expenses to reflect the roll out as previously flagged. Interest costs were bang in line with our forecasts, implying adjusted PBT of £15.7m, which is 7% ahead of our £14.6m forecast. Cash generation was strong despite the investment in stock, with net cash of £7.3m and marginally ahead of our forecasts. The dividend at 4.3p was also ahead of our 3.0p forecast and based on earnings cover of 3x.
Outlook – The company has highlighted macroeconomic and political uncertainty across the UK economy, but remains cautiously optimistic regarding the UK used vehicle market. While Motorpoint is clearly more exposed to the used car market vs. the slowing new car market, the key question to our minds is the extent to which the dealers become more of a competitive threat to Motorpoint in their core market. We believe this would be logical given the new car market now appears to be getting more difficult. The fundamentals of the used car market remain sound with record Q1 volumes and pricing said to be in line with normal seasonal patterns. However, the competitive pricing dynamics could well change for Motorpoint as we progress through the year.
Forecast assumptions – While Motorpoint Group Plc has clearly delivered strong momentum in H2 2017, with the first two months of its financial year starting well, we are maintaining our forecast assumptions for FY18 for now. We believe we will get a clearer picture of its trading progress post Q1, and will continue to carefully monitor how the dealers continue to target this area of the market.
Investment view – The company currently trades on a 2018 P/E of 10.3x and an EV/EBIT of 6.9x, which remains at a clear premium to the dealers. We believe the listed dealers offer superior asset backing and a more diversified business model at a time of uncertainty in the wider motor industry.
