Zeus Capital Head of Research Mike Allen caught up with DirectorsTalk for an exclusive interview to discuss Vertu Motors Plc (LON:VTU)
Q1: Mike, can you shares your thoughts for us on how Vertu Motors have performed?
A1: Yes, sure. So, the company had final results for the 12-month period ended 28th February and they’ve beaten our expectations across the board. Revenues were up 16.5% year-on-year, 2% ahead of our expectations, under PBT was actually in line at 31.5 million with earnings ahead at 7% ahead of our expectations and that was owing to a lower tax charge predominantly and the dividend was in line with expectations and was 8% year-on-year.
Q2: So, what were the key drivers behind these good results?
A2: I think the star performer was definitely used cars, that was particularly positive and that generated nearly 70% of the core gross profit growth in the group and after sales also showed some very good progress as well with like-for-like’s running in excess of 5%. It was also good to see the acquisition from ‘16 and ‘17 come through as well and I think that definitely validates the consistent strategy management have had in place since inception, over a decade ago.
Q3: Has this changed your forecast for Vertu?
A3: It hasn’t. I think we have been cautious for a while on the markets and we are going to maintain our forecasts at the lower end of the consensus range, there is a slight increase on our earnings forecast but that’s just due to a lower tax rate assumption that we’ve got in. We think our forecasts are conservative based on how the business is currently performing and they had a very good March and April despite the market being difficult.
Q4: Finally then, what’s your view on the stock and Vertu Motors’ valuation?
A4: We think the valuation is very attractive at the moment, the shares are on a PE just over 7 times February ’18 earnings, that’s based on varied forecast assumptions. EV EBITDA just over 4 times, that is a 15-20% discount to the UK sector average at the moment, and we do think that is unwarranted given it has the strongest and most flexible balance sheet in the sector. So, the sector is over sold at the moment but we think Vertu Motors’ valuation within that is very compelling. There’s also a 3% dividend yield on offer at the moment which we’d expect to rise towards 4% in 2020 and that’s an area where dividend covers run in excess of 4.5 times and they’ve delivered very attractive CAGR over the last 5 or 6 years.
