24th Nov 2022 14:15
(Alliance News) - While Motorpoint Group PLC's interim results are evidence of a tough trading environment, its strategic investments will leave it well-placed for growth in the longer term, according to the firm's broker, Shore Capital.
On Thursday, the Derby, England-based second-hand car retailer said revenue rose 30% to a record GBP786.7 million in the six months ended September 30, from GBP605.2 million a year prior.
The rise was down to growth in market share, vehicle mix and price inflation.
The average market share for customers within a 30-minute drive of a Motorpoint rose to 2.2 percentage points to 9.5% in the year; progress its broker termed "encouraging".
"We believe this is supportive of management's site growth strategy, with a total of 19 sites, from 14, now bringing the Motorpoint brand and offer to more customers," the broker said.
Investment bank Liberum concurred: "Market share gains have been strong, providing validation of the strategy."
"We believe management has been particularly pleased with the early performance from new sites at both Edinburgh and Coventry, which have opened in areas where the Motorpoint brand is already well-known and understood," Shore Capital said.
Shore Capital believes the firm is "well-placed" to deliver on its 24-site target over the coming two years, given it already has a pipeline of new locations in place.
However, less positively, pretax profit plunged to GBP3.0 million from GBP13.5 million the year prior. This was in line with the guidance given back in its October trading update.
Profit was hit by increased investment in relation to its strategic objectives totalling GBP3.5 million for the fall in profit, rising interest costs, as well as record margins experienced in the previous year.
Vehicles sold also fell 8.2% year-on-year.
Motorpoint noted that consumer uncertainty and vehicle supply challenges are significantly affecting the used car market and admitted that this will "likely" have an impact on its full-year performance.
Shore Capital estimates the firm will bring in around GBP6.5 million in financial 2023 in adjusted profit before tax, a 70% drop from GBP21.5 million the year before.
"The focus on nearly new cars means that Motorpoint is feeling the pain of supply shortages and demand weakness more acutely than franchised dealers right now who are benefitting from strong order books and margins on new cars, as well as aftersales," Liberum commented.
However, the investment bank said the market share gains should help to bolster the brand and boost repeat business in the longer term. Its investments in technology will also help to reap gains in material productivity, Liberum said.
"Nonetheless, investors are likely to need to see signs of an inflection point in earnings momentum before the share price starts to reflect the longer-term targets," Liberum said.
Motorpoint shares were down 2.0% to 151.00 pence in London on Thursday afternoon. The stock is down 55% in the year-to-date.
Liberum maintains its 'buy' rating, with a discounted cash flow-based target price of 195p.
By Elizabeth Winter; [email protected]
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