Vertu Motors Plc

Vertu Motors Plc (LON: VTU) is an FTSE AIM All-Share index listed motor retailer. It operates a chain of a franchised dealerships for offering sale, body shop facilities, servicing and spare parts for new, used and commercial vehicles.

Investment Rationale for Valuation – SELL at GBX 52.00

• There is a strong possibility of new vehicle supply shortages in the near future.
• Used vehicle supply could also be restricted as a consequence of new vehicle supply shortages.
• On the profitability front, the net margin since H2 FY2019 has been lower than the industry median of 4.2%
• In the last year, the stock generated an excellent return of about 100.79%. Hence, investors have an opportunity to book an impressive profit.
• On the technical front, the 14-day RSI at about 75.79 is sustaining in the oversold zone. Also, the stock price is sustaining above the upper Bollinger band. Hence, there could be a correction in the stock price in the near term.

Key Risks

• Covid-19 induced possible future restrictions could lead to an impact on the supply chain of VTU, affecting its margins.
• Currently, there are wide labour shortages in the UK as well as rising employment costs. It could affect the operations of the Company.
• The reduction in disposable income may cause a decline in consumer spending tendency, which could adversely affect consumer demand.

H1 FY2022 Trading Update (released on 20 August 2021) 

• Driven by the exceptional UK used car market conditions, VTU, in H1 FY2022, experienced solid used vehicle gross margin retention.
• Hence, the management expects to deliver an adjusted profit before tax of about £50 million in H1 FY2021.
• However, there could be a new vehicle supply shortage in the market. It could lead to restricted used vehicle supply in future.
• The management expects profit before tax for FY2022 to be between £50 million and £55 million.

One Year Share Price Chart

(Source: Refinitiv, Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Conclusion

The Company intends to initiate a share buyback programme. However, there could be shortages of both new and used vehicle supplies in the near future. Also, pandemic related challenges could reappear due to the delta variant of Covid-19.  Hence, it would be prudent to liquidate the position at a profit. Overall, we do not have significant catalysts to support an uptick in the stock price and recommend exiting the position currently. The stock made a 52-week low and high of GBX 21.22 and GBX 78.75, respectively.

Considering the continued economic and market uncertainty, possible shortages in new and used vehicle supply and unfavourable valuation as done using the above method, we have given a “SELL” recommendation on Vertu Motors Plc at the current market price of GBX 52.00 (as of 20 August 2021 at 7:40 AM GMT), while we will revisit our stance based on further corporate announcements by the Company. 

*The reference data in this report has been partly sourced from Refinitiv.

*All forecasted figures and Peers/ Industry information have been taken from Refinitiv.

*Dividend Yield may vary as per the stock price movement.

Disclaimer

References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.

This website is a service of Kalkine Limited. Kalkine Limited is a private limited company, incorporated in England and Wales with registration number 07903332. Kalkine Limited is authorised and regulated by the Financial Conduct Authority under reference number 579414.

The article has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. No advice or information, whether oral or written, obtained by you from Kalkine or through or from the service shall create any warranty not expressly stated. Kalkine does not intend to exclude any liability which it is not permitted to exclude under applicable law or regulation.

Kalkine does not offer financial advice based upon your personal financial situation or goals, and we shall NOT be held liable for any investment or trading losses you may incur by using the opinions expressed in our publications, market updates, news alerts and corporate profiles. Kalkine does not intend to exclude any liability which it is not permitted to exclude under applicable law or regulation. Kalkine’s non-personalised advice does not in any way endorse or recommend individuals, investment products or services for your personal financial situation. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional authorised financial planner and adviser. You should be aware that the value of any investment and the income from it can go down as well as up and you may not get back the amount invested.