As mentioned in posts earlier this year, Motor retail companies have been buying up dealerships, paying way over the odds and reporting increased profits on the back of it. The way they have been achieving that is by carrying the overpayment in the balance sheet as "goodwill" and these days (wrongly in my opinion) accounting rules allow them to apply largely subjective tests not to write down the goodwill. However, when as in the case of Pendragon they start having to look at abandoning certain manufacturers' franchises then the potential for having to write off huge sums of this "goodwill" is enormous.
Vertu is a much more defensive business having net tangible assets per share of 38p after deducting £95 million goodwill, whereas Pendragon has about £350 million of goodwill which represents almost the entire net worth in the balance sheet, so net tangible assets per share of about "zilch"!
Nevertheless, I suspect it is almost certain that Vertu will be compelled, like Pendragon, to write off some considerable sums of that goodwill. We have all been there before and, in one major market dip, could buy motor dealer shares for under net tangible asset value and in some cases well under.
Youre lucky, Daily Star. Ive seen lots of shares suffer a gentle decline as the reality of their market situation slowly hits home. The benefit of a gentle decline is that it does give you time to take action whereas a plummeting sp gives you no time at all. ;-))
Good luck, TP
Well, tommy, tomorrow has come and gone so far as the markets are concerned, and, guess what ?
Absolutely no plummeting in sight :-)))
Next week should see a bit of a rise across the board as the city gets back to work.
Possibly an upturn in VTU's sp too ??
Good luck with you short.
Not sure sector will " collapse" as you put it ( a bit ott) but agree fully with your assessment of any buy back programme. If they've got spare cash it should be reinvested in the business.
But I'm not selling.
Sold out. Share buy-backs are a sign that directors do not know what to do the cash the company is holding. Experience has taught me that institutions use it as an opportunity to sell out and it often as a consequence does nothing to boost the share price. The most sensible option would have been for the directors to retain the cash for future investment opportunities as there should be some bargains in the auto sector as a consequence of Brexit when the sector collapses.
700k shares bought back at a cost of c£300k
Doesn't seem to have lifted the sp much, even though our shares are technically worth a bit more. I don't think share buybacks are worth it. They'd be better spending the money on business enhancing stuff or just putting the divi up a bit more.
Still, other than that little problem, (and, of course the macro economics) the company seems to be doing well. Still a good management team, doing a good job.
Apart from the 4.4% rise in March and the 6.1% drop in April sales they don't give much away in terms of figures. So it may be downbeat in respect of April May due to macroeconomic factors but the overall statement about the health of the business is robust. That, coupled with the share buy back makes this, overall, a positive statement.
Increased divi too !
excellent summary of VERTU forward ,but the potential problem with pcp.s ,as you indicate is looming larger in my mind .in the daily mail today a report says that a minimum wage earner can have a £13 k car/ a £40k earner can have a £60 k car under pcp's . I just hope the sales staff are doing everything by the book.....the last thing the industry needs is class action for missold credit .
This is a car dealership chain. Its website is here. It operates from over 120 sites nationwide, with multiple car brands.
There's a useful results video (8 mins) from the company, courtesy of BRR Media, here.
These numbers look good. The company had previously said that new car sales were down, but used car sales and aftersales (servicing, etc) up. A few key numbers;
Revenues up 16.5% to £2,823m - most of this increase has come from acquiring new sites. Within that figure, organic growth was 4.4%. That looks a good result, considering new car sales were down 6.4% on a LFL basis.
Used car sales were strong - up 7.1% on a LFL basis. It's interesting to how the link between new car sales and profitability, which the stock market usually assumes to be the case, actually isn't the case. Poor new car sales has been compensated for by increased used car, and aftersales, and margin improvements.
Outlook & current trading look surprisingly good. There's a lot of detail in this, and sounds encouraging to me;
In March and April 2017 ("the post year-end period") the Group has continued to trade strongly, with profits ahead of the prior year on a like-for-like and total basis. Margins strengthened and operating expenses on a like-for-like basis were reduced as the cost base was flexed for lower new vehicle sales volumes and cost efficiency programmes delivered.
Used cars continued to see like-for-like volume growth and margin improvement. Service also witnessed growing revenues and stable margins on a like-for-like basis.
The March plate change month saw a record number of new vehicle registrations in the UK according to the SMMT. The 4.4% growth in March new retail UK registrations was aided by an element of pull forward of demand due to increasing vehicle excise duty from 1 April 2017 and the timing of Easter. April, as anticipated, saw a decline in SMMT new retail registrations of 28.4%.
In the post year-end period SMMT new retail registrations declined by 3.5%. The Group saw significant growth in new retail vehicle profit contribution in the post year-end period despite a 9.7% decline in like-for-like new retail volumes. Pricing disciplines and cost control delivered higher margins and profits year on year in new vehicle sales.
The Board is also pleased to report an excellent contribution in the post year-end period from dealerships acquired in the previous financial year.
While the Board is aware of the wider reporting of the UK entering a more cautious consumer environment, trading in the post year-end period has been strong. The Board remains confident about the Group's prospects for the current financial year and in delivering further progress in enlarging the scale of the Group.
Balance sheet - looks alright to me. Although as with all car dealerships, there is a vast amount of working capital tied up - massive inventories, financed mainly with massive trade creditors - i.e. the money owed to the manufacturers & other suppliers.
In this case, NAV is £246.4m, which reduces to NTAV of £150.4m. Therefore about 78% of the market cap is supported with tangible net assets - a fairly secure position, in my view.
Potential problems - one of the reasons car dealers are cheap at the moment, is because of Brexit worries. Could this stifle the importation of cars from Europe? Personally I very much doubt it - why would the Germans allow the EU to cripple their export industries? (the UK apparently takes about 20% of the entire output of Germany's car companies). Although in reality, at this stage, nobody knows. So it's educated guesswork for investors to a certain extent.
The other potential issue is that of possible mis-selling of personal contract hire vehicles. We've seen how the banks were clobbered with mis-selling
Well it looks as though I and PJ got it right, and 42p really was the floor! Only joking, of course, I followed PJ's purchase...
I did say at the time that the NAV excluding intangibles (which can be written off at a stroke if profitability falls) was 38p (hence 42p the floor) and that I was only buying to catch favourable momentum and positive statements. However, following the latest "excellent" results the NAV excluding intangibles is still only 38p and that despite
1) 56,000 shares issued for 62.5p, so increasing tangible NAV
2) There are an increasing number of share options, 20 million of which over 5million are massively dilutive at a low or no exercise price, not taken into account and would reduce NAV
3) only £614,000 of intangible assets were charged to p&l of the £96 million intangibles remaining on the balance sheet (so less than 1%) , that was all that was "deemed to be necessary this year"!
What does all this mean? Nothing if the current environment keeps going, and optimistic acquisitions and statements will improve the share price and the management have a clear strategy BUT it cannot keep going (cycle, PCP ratchet effect etc) and dealerships are totally captive to manufacturer actions. I, therefore, will hold until the price gets quite a lot higher (still believing 42p was and remains the floor!) and hope to sell before what I expect to be a ghastly and huge shake out, when even my "floor" might be tested.
SMMT say that new car sales are up 8.4% in march /6.2% for qtr 1 2017 .even allowing for the changes in tax this is v good . Vertu must be getting their fair share of this business ....yet the market is being ultra mean to the share price....what am i missing? what is it that i don't get? employment prospects look good /long term money looks like staying very low....
Underlying business is sound despite a softening in commercial and new car sales.
Clearly the reduction in new car sales has caused an increase in used car business which is high margin stuff. Good news too, on the servicing an drew aftersales market.
Interesting to note that, despite reduced acquisitions recently, the policy of growing the number of branches by acquisition has not changed. So maybe not as aggressive but still on the hunt for more dealerships.
Sorry, Tommy. I've been far too busy with FRR, AFC, and SOU, to look in here.
I've been with VTU since the 30odd p days so I've seen the ups and downs. But, I like the acquisitive, aggressive growth model adopted by them, coupled with a good reputation for value and service.
So, I see 50p as fairly achievable in the short term. I'm aiming to get into the 60s but wouldn't hazard a guess as to how long that will take !
So, for me it's a solid defensive buy that's not going to double (or tank) overnight, unlike some of my portfolio ;-)))
Good luck, TP
bank of england (sheepishly) admitting they've been too pessimistic about the outlook for post brexit and upgraded (for the 2nd time) GDP growth to 1.6% for 2017 .yes ,there are inflationary worries but the consumer carries on consuming at a fair old pace and you never know ,things might work out ok for the uk as we negotiate our way out .interestingly enough BOE is more worried about the outlook for the EU than the UK . my guess is VTU is oversold
Preclose statement today by Marshall's echoes a lot of where we are. Good results anticipated showing marginal improvements across all sectors. But caution about the trend for 2017.
We are not alone !
Similar sentiment was, I recall, expressed by Cambria back in November.
Ok, so Brexit knocked VTU last year and it's taking its time to recover after a false start in September when it rallied to 50ish.
But we have a very sound company here whose aggressive approach has paid off so far.
Whilst the new car market has softened this will only drive people to the used section. Here vtu has built up a good reputation and has a strong offering.
In other words its swings and roundabouts.
But, please don't expect the sp to double overnight, it just ain't gonna happen. It may slowly regain the 50s in the next 18 months as Brexit terms slowly become apparent.
So that makes it a hold for me. Better money to be made elsewhere if you're impatient.
Not in heavy, but so far it has not taken off as I had hoped - and I am nervous about the current height of the market, what with Brexit etc. around the corner. I have sold off a few other shares recently to realise profits to date. However I still have a (positive) gut feeling about Vertu (as the Chinese love gambling, the British love cars.....) and this usually trumps obsessive analytics. So I will stay in a while longer and see what happens.
just listened to bbc report on record car sales 2016 but predicting sales down 5% in 2017 .brexit gets some of the blame but also the way we buy car today (just like mobile phones ) means that car sales just get bought forward a bit .a bit of a concern to me was speaking ,over xmas ,to a sales manager who has recently worked for bristol s motors telling me just how many cars had been pre reg just to hit their target (170 pre reg at his branch) ,this is code for ....sales are slowing .the share price correction has been quite savage ....35% over the year ,i'm hoping the bad news that may come is in the share price .if trade just goes soft for a while i think we'll recover ok .there's nothing wrong with the business model that i can see but what do i know?
2016 SP falls were largely driven by Brexit concerns not cash flow ... see LOOK, MMH. True the big dealer investment program is impacting cash, but it makes sense to do it when the market is riding high. Margins are up, profit is up and customer retention numbers look good. My personal experience of the group is positive. The finals should confirm a record year. Brexit remains a negative but any good news on transitional trade arrangements will likely produce decent SP rise.
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