Bargain hunter Cambria Automobiles is a bargain

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Cambria Automobiles ought to appeal to value investors. It has a value-conscious strategy, and the shares look cheap.

Established in 2006 to buy distressed and poorly performing motor vehicle dealerships and turn them around, Cambria's management must have been delighted when the credit crunch threw up so many opportunities. To date it's made eight acquisitions and owns a network of 39 dealerships in the south east and north west.

It inducts new employees, which it calls associates, in a culture change programme, the 'Four Pillars', which means delighting staff (associates), guests (customers), brand partners (suppliers), and stakeholders (the rest of us). Then introduces standard financial controls, implements growth strategies based on social networking and after sales service, and leaves local management to operate autonomously.

Six years on, probably its worst in terms of profitability, the company is in reasonable financial shape. It has as much cash as debt, is profitable and potentially undervalued:

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Hitherto, Cambria has largely paid for acquisitions from its own resources and refused to pay for goodwill, which makes it a value investor. But that may change. Turning dealerships around takes time and investment, which reduces earnings in the short-term. Now management is considering 'earnings enhancing' acquisitions, and paying for goodwill. 

Perhaps there are no more bargains around, but if Cambria is seduced into over-paying, it may end up enhancing earnings in the short-term only to write off .

Last year new car registrations rose 1-2%, but not for Cambria's brand partners, which are spread fairly evenly between prestige and volume marques. They fell 4%. Reading between the lines of the full-year results, Cambria blames, at least in part, manufacturers who are trying to make good severe reductions in demand in Europe by earning bigger profit margins here. 

Still, management says conditions in the new car market have improved and so has the company's performance in the first quarter. And the shares do look cheap.

Comments

Happy New Year Richard!

I looked at Cambria a while back and reached much the same conclusions as you re: the operations

http://expectingvalue.com/shares/cambria-automobiles-camb

The director ownership is what put me off in the end. Really interesting sector though. Vertu, Lookers and Cambria are always interesting little ones to look at.

Thanks Lewis, happy New Year to you too. I read your post with interest, of course. These quick pen portraits I'm doing look at the operating business mainly so I hadn't even considered ownership. I understand your reluctance, with insiders owning close to 50%, though it might not put me off. I've done very well out of companies like Dewhurst, still controlled by the founding family.

I think you just have to make a judgement based on the record of management. Have they treated minority shareholders fairly in the past? It's more difficult for a company like Cambria, which hasn't been listed that long, than for Dewhurst, which has. Jerry posted an interesting comment on a post about Character Group recently: http://www.iii.co.uk/news-opinion/richard-beddard/profit-plunge-character

He says management are treating other shareholders unfairly by buying back shares and using them to remunerate themselves. I suppose it comes down to whether remuneration is excessive, as you said.

Thanks Richard and Lewis. I agree with both of you.

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