As­set-backed Mar­shall Mo­tor has gas in the tank

Deal-hun­gry au­to­mo­tive re­tailer is a great value growth and in­come se­lec­tion

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Au­to­mo­tive re­tail and leas­ing group Mar­shall Mo­tor (MMH:AIM) rep­re­sents com­pelling value at the cur­rent price. Sen­ti­ment to­wards car deal­er­ships is presently poor amid uncertain prospects for the UK car mar­ket, but Cam­bridge-head­quar­tered Mar­shall Mo­tor has an at­trac­tive brand mix and a cop­per­bot­tomed bal­ance sheet that pro­vides M&A fire­power and a mar­gin of safety.

We see scope for a higher share price as Mar­shall suc­cess­fully ex­e­cutes its growth strat­egy and mar­ket con­di­tions prove less gloomy than feared.

STRENGTH THROUGH DI­VER­SITY

Steered by CEO Daksh Gupta, Mar­shall Mo­tor de­rives strength from di­ver­sity; its busi­nesses have 104 fran­chises cov­er­ing 24 brands, balanced across cat­e­gories such as ‘vol­ume’, ‘prestige’ and ‘al­ter­nate pre­mium’, and op­er­at­ing across 26 English coun­ties.

Record first half re­sults (15 Aug) re­vealed 33% growth in un­der­ly­ing profit be­fore tax to £18.6m on sales up 43.7% to £1.19bn, boosted by May 2016’s ac­qui­si­tion of Ridge­way. This multi-fran­chise dealer ex­tended Mar­shall’s reach into the af­flu­ent Home Coun­ties and strength­ened ties with brands such as Audi, BMW, Jaguar,

Land Rover, Volk­swa­gen and Mercedes-Benz.

The UK new car mar­ket has be­come more challenging, neg­a­tively im­pacted by weaker ster­ling and grow­ing con­sumer un­cer­tainty. De­spite this back­drop Mar­shall re­ported a mar­ginal 0.4% like-for-like de­cline in new car sales against a 4.8% UK new car mar­ket de­cline. De­spite mar­gin pres­sure in used cars, Mar­shall still de­liv­ered 5.8% like-for-like unit growth, in part re­flect­ing its strength­ened on­line pres­ence.

En­cour­ag­ingly, higher mar­gin af­ter­sales shot up more than 43% and while leas­ing prof­its de­clined against tough prior year com­par­a­tives, ‘a num­ber of new cus­tomer ac­count wins’ should drive growth from the sec­ond half on­wards.

FIRE­POWER APLENTY

Out­per­form­ing the mar­ket on a num­ber of mea­sures, Mar­shall Mo­tor has the bal­ance sheet strength and cash flow nec­es­sary to in­vest in spruc­ing up deal­er­ships and un­der­take ac­qui­si­tions in a frag­mented mar­ket. Its free­hold/long lease prop­erty portfolio of £112.5m rep­re­sents 145p per share or 71% of its net as­sets which amount to 204p in to­tal. Ad­justed net debt of £35.1m is just 0.7 times earn­ings, giv­ing Mar­shall plenty of bal­ance sheet fire­power.

For the year to De­cem­ber, N+1 Singer fore­casts ad­justed pre-tax profit of £28.1m (2016: £25.4m) and a 6.1p div­i­dend cov­ered 4.5 times by es­ti­mated earn­ings of 27.7p, plac­ing Mar­shall on a prospec­tive

PE of 5.8 times and of­fer­ing a 3.8% yield. An up­wards move, even to a con­ser­va­tive ten times mul­ti­ple, would drive the shares to 277p for 71% up­side. For 2018, N+1 Singer en­vis­ages £28.9m of profit, earn­ings of 28.2p and div­i­dend growth to 6.2p. (JC)

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