Bargain hunter Cambria Automobiles is a bargain
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:
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.
About the author
Richard is companies editor of Interactive Investor and a columnist at Money Observer magazine. A keen private investor through his Self Invested Personal Pension, he manages two virtual portfolios. The Share Sleuth portfolio is a hand-picked collection of mostly small-cap value shares, while the Nifty Thrifty is a mechanical portfolio designed to pick large, successful companies at cheap prices.
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