Ready to man­age tricky mar­ket con­di­tions

Finweek English Edition - - MAR­KET­PLACE -

I get it, this com­pany sells cars, which is a tough space to op­er­ate in. But even with new ve­hi­cle sales fall­ing lo­cally, Com­bined Mo­tor Hold­ings (CMH) man­ages to do it bet­ter than al­most any­body else. The op­er­at­ing mar­gin has in­creased from 2.6% to a very strong 3.9% in the last five years, while HEPS has grown at a com­pounded 19% and the div­i­dend at 27% over the same pe­riod. Dur­ing this time the share price has al­most dou­bled by grow­ing at just un­der 15%. So, price has lagged growth in both profits and div­i­dends.

Cur­rently the div­i­dend yield and priceto-earn­ings ra­tio (P/E) are sit­ting at around 7 and this sug­gests the mar­ket is ex­pect­ing the fu­ture growth in profits to be neg­a­tive.

New ve­hi­cle sales are ex­pected to start creeping higher this year, but even if they’re just flat we can ex­pect in­creased de­mand for qual­ity sec­ond-hand ve­hi­cles, which are be­com­ing harder to find due to lower new ve­hi­cle sales.

With a very strong bal­ance sheet, CMH will be able to man­age tricky mar­ket con­di­tions and should con­tinue to grow profits and div­i­dends, adding to the al­ready at­trac­tive yield.

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