2nd Sep 2024 12:47
(Alliance News) - Analysts were split on Vertu Motors PLC on Monday after a trading update described by one as "robust", and another as a "mild" profit warning.
On Monday, the car dealership, which has 192 showrooms and after-sales sites across the UK, said new car sales by volume fell 5.8% in the five months to July 31.
Margins have been put under pressure and there has been a growth in the pipeline inventory of new vehicles held by manufacturers and retailers, the firm noted.
Core group gross profit margin on new retail and Motability vehicle sales was 7.9% in the period, Vertu said, compared with 8.8% in financial 2024.
Used car sales were more resilient, up 5% by volume in the five months, helping overall group revenue lift 3.3% on a like-for-like basis.
In addition, Vertu said its high margin aftersales operations delivered a "robust" performance with revenue and gross profit growth achieved in all areas on the back of strong execution and higher technician resources.
Vertu said that, while first-half profits are expected to be lower, its performance is set to improve year on year in the final six months thanks to the stronger used car market.
This will leave full-year underlying earnings "broadly" in line with expectations.
Vertu said retail demand for new vehicles, particularly electric vehicles, is likely to remain weak, driven in part by high vehicle prices and the lack of government financial incentives.
The firm noted new vehicle order-take for the important plate change month of September is currently tracking at levels below the prior year reflective of the weakening retail market in 2024.
But Vertu expects reduced supply of used vehicles to keep used car prices stable, while lower interest rates should aid the future affordability.
The company added that it remains "highly focused on cost and efficiency" as higher staff wage bills push up cost pressures, with plans to roll out trials automating some admin and finance tasks in the coming months.
Looking ahead, Vertu said it is "delivering on its stated strategy and is well-positioned to take advantage of opportunities that arise whilst the market remains in an adjustment period, given the group's track record of execution and strong financial position. The board remains highly confident in the group's long-term prospects."
Stifel called it a "robust trading update".
The broker noted Vertu has outperformed a subdued new retail end-market with volumes down 5.8% against 12.1% for the UK as a whole.
Stifel did however trim financial 2025 and 2026 adjusted earnings per share forecasts by 4.8% and 4.5% respectively noting company comments that retail demand will likely remain weak.
"Overall, we view this as a robust update, with management controlling the controllables in a volatile end-market. We remain buyers and trim our [price target] to 91 pence (from 93p)."
Stifel views a one-year forward PE of around 8x as "attractive" for a leading UK automotive retail group with an experienced management team and a strong track record of consolidating the UK market.
AJ Bell's Russ Mould felt the update amounted to a "mild profit warning for its full financial year – 'broadly in line' with expectations roughly translating as falling just short."
He pointed out even this relies on a stronger second half showing after a weak first half.
He said it remained a "tough environment" for car dealerships as pressured household budgets "slam the brakes" on demand for higher value sales of new and electric vehicles.
"All the while Vertu is contending with higher costs in areas like energy and wages," he added.
Shares in Vertu eased 2.2% to 70.02 pence each in London on Monday.
By Jeremy Cutler, Alliance News reporter
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