Marshall Motor Holdings Plc

Marshall Motor Holdings Plc (MMH) is engaged in the retailing passenger cars and commercial vehicles in the United Kingdom. The group trades new and used vehicles; and offers after-sales services, such as parts sales, body shop repairs, and servicing. The company has two main segments: Retail and Leasing. The retail segment includes ancillary services and sales of motor vehicles. The leasing segment includes service-led fleet management services. The company’s retail automobile brands consist of BMW Motorrad, Hyundai, Land Rover, Volkswagen, SKODA, Nissan, Volvo, Smart, Audi, Ford Vans, Volkswagen Commercials, Mercedes-Benz, MINI, Peugeot, Mercedes-Benz Commercials, BMW, Jaguar, Vauxhall, Maserati, Seat, Kia, Honda, and Ford. The group’ main attention is on leasing vehicles to end customers and fleet consumers. The Group operates 106 franchise dealerships across 27 counties in England.

Recent News
On 13th August 2019, Marshall Motor Holdings announced its interim results ending June 30th, 2019.

Financial Highlights – H1 Financial Year 2019 (£, million)

(Source: Interim Report, Company Website)

In the first half of the financial year 2019, the company’s revenue surged by 1.8 per cent to £1,183.3 million as against £1,162.9 million in the first half of the financial year 2018. The increase in the revenue was driven by an increase in the revenue from Used car and aftersales businesses. The company’s LFL revenue (Like-for-like) surged by 0.9 per cent to £1,160.6 million in H1 FY2019 from £1,150 million in H1 FY2018. With the increase in the net operating expenses for the period, the company’s operating profit declined to £19.75 million in H1 FY2019 from £21.14 million in H1 FY2018. The underlying PBT (Profit before tax) declined by 5.3 per cent to £15.2 million in H1 FY2019 from £16 million in H1 FY2018. The Reported PBT (Profit before tax) declined by 9 per cent to £14.8 million in H1 FY2019 from £16.2 million in H1 FY2018. The underlying basic earnings per share declined by 6.8 per cent to 15 pencein H1 FY2019 from 16.1 pence in H1 FY2018. The company’s reported basic earnings per share declined by 10.4 per cent to 14.6 pence in H1 FY2019 from 16.3 pence in H1 FY2018. The dividend per share was up by 32.6 per cent to 2.85 pence in H1 FY2019 from 2.15 pence in H1 FY2018.

Share Price Performance

Daily Chart as at August-27-19, before the market close (Source: Thomson Reuters)

On August 27, 2019, at the time of writing (before the market close, at 1:19 PM GMT), Marshall Motor Holdings Plc shares were trading at GBX 145.00, up by 1.75 per cent against the previous day’s closing price. Stock's 52 weeks High and Low are GBX 178.00/GBX 122.00.

Valuation Methodology

*Peers: Halfords Group Plc, Cambria Automobiles Plc, Lookers Plc, Vertu Motors Plc and Card Factory Plc.

Conclusion
Although the company’s financial performance had declined for the period, but its Top-line performance had improved in the first half of the financial year 2019. Brexit continues to weigh on prospects, and the SMMT (Society of Motor Manufacturers and Traders) is forecasting a further modest fall in the new car sales in 2019. The supply-side issues caused by WLTP should unwind in H2 2019, but this could remove some of the supportive elements seen in used car markets. 

The management’s confidence in its strong balance sheet is reflected in high ongoing levels of investment in sites, renewed appropriate M&A, such as the recently announced purchase of Skoda franchises, as well as the dividend cover policy revision that allocates more cash to shareholders. Clearly, a more recessionary environment could hurt car retailers, but for the present, the group expects robust profitability growth against the assumed fall in volumes.

Based on the decent growth prospects of the company and the valuation done using the above method, we have given a “Speculative BUY” recommendation at the closing price of GBX 142.50 (as on 23rd August 2019) with single-digit upside potential based on 6.9x NTM Price/Earnings (approx.) on FY19E earnings per share (approx.).
 
*All forecasted figures and peers have been taken from Thomson Reuters.
*The “Speculative Buy” recommendation is also valid for the current price as covered in the report (as on 27^th August 2019).

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