Car Dealerships (VTU, CAMB, LOOK, PDG), Part 4: Conclusion & decisions

Friday, May 31 2013 by

In this, the last part of the series, I'll try and wrap up the different parts of my analysis over the last three posts into one coherent outcome - what would I invest in, and why? For those who haven't read the other three parts, I'll link them with a brief description here.

Part 1: Introduction to the sector and an outline of the broadest differences

Part 2: Analysis of the key area where the companies differ; returns; and what it means for investors, with a focus on margins and costs

Part 3: Focusing on Vertu, a look at some key explanations for the differences relating to business model

The basics

We have four companies which trade on quite differing valuations relative to the amount of assets in the business. You might argue that valuing a business on its assets is dodgy ground, and I'd agree, but when looking at companies in a specific sector - and it's a sector which isn't driven by intangibles (think software development, accountancy etc.) - there's some attraction. After all, since there's no impossible-to-value intangibles, those assets are a loose guide to how much it'd take for someone to come along and replicate the business.

The question then becomes - how much more is there to this business than simply the assets? What are the best performing companies in this sector doing that the worst aren't? If you identify anything - are these factors easily replicable by the worse-performing businesses? If they're not easily replicable, the competitive advantage is sustainable - like Coca-Cola's brand.  If they're not replicable, it's reasonable to expect that the companies in the sector will tend to converge towards one another in terms of returns, as competition and the evolutionary nature of markets acts.

Since it's the final post, I won't be roundabout or pensive with my thoughts - there doesn't appear to be that much that Lookers and Pendragon are doing that Vertu and Cambria aren't.  I think most of the differences in returns can be attributed to, firstly, the differences in size - smaller companies have higher fixed costs relative to larger ones, and secondly to the fact that both Cambria and Vertu are more acquisitive and are younger companies. Speaking to Vertu's FD, as in my last post, there's relatively few adjustments you have to make to the operating profit figure (exclude businesses acquired…

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Vertu Motors plc is an automotive retailer in the United Kingdom. The principal activity of the Company is the sale of new cars, motorcycles, and commercial vehicles and used vehicles, together with related aftersales services. The Company is engaged in the provision of management services to all subsidiary statutory entities. The Company operates a chain of franchised motor dealerships offering sale, servicing, parts and bodyshop facilities for new and used car and commercial vehicles. The Company also operates various franchise dealerships, such as Volvo, Volkswagen, Land Rover, Audi, Mercedes-Benz and Jaguar, and operates Honda dealerships in the United Kingdom. The Company operates approximately 125 franchised and over three non-franchised operations across England and Scotland. The Company's subsidiaries include Bristol Street First Investments Limited, Bristol Street Fourth Investments Limited, Vertu Motors (VMC) Limited and Grantham Motor Company Limited. more »

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Cambria Automobiles plc is a motor dealer, which is engaged in the sale and servicing of motor vehicles. The Company is engaged in the provision of car vehicle sales, vehicle servicing and related services. It is a retailer of new and used cars, commercial vehicles and motorbikes. It operates on a dealership-by-dealership basis. It operates from approximately 30 sites with a total of over 50 dealer franchises. It operates dealerships across England, from the North West through the Midlands, down to Kent in the Southeast and across Exeter in the South West, trading under local brand names, such as Dees, Doves, Grange, Invicta, Motorparks and Pure Triumph. Its brand portfolio comprises Abarth, Alfa Romeo, Aston Martin, Dacia, Ford, Fiat, Honda, Jaguar, Jeep, Land Rover, Mazda, Nissan, Renault, Seat, Triumph, Vauxhall and Volvo. It also provides ancillary services. It offers finance and insurance for the execution of the transaction along with service plans to maintain the vehicle. more »

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Lookers plc operates as a motor retail and aftersales company in the United Kingdom. The Company operates through two business segments: motor distribution and parts distribution. The motor division consists of over 150 franchised dealerships representing over 30 marques from approximately 100 locations. Aftersales represents the servicing, repair and sale of franchised parts to customers' vehicles. Its parts division operates in the independent aftermarket sector of the United Kingdom's motor retail market, where it operates through three operating companies: FPS, Apec Braking and BTN Turbo. FPS is a warehouse distributor of automotive parts. Apec Braking is a provider of dry braking (pads and discs). BTN Turbo is a distributor of turbochargers and supplier of related value added services. Its operations are also carried out across Ireland. It sells approximately 180,000 new and used cars and vans per year. In addition, it has an independent parts distribution business. more »

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  Is LON:VTU fundamentally strong or weak? Find out More »

5 Comments on this Article show/hide all

alterego 7th Jun '13 1 of 5

Excellent series of articles and thought provoking conclusions. Thanks

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ExpectingValue 7th Jun '13 2 of 5

In reply to post #73921

Thanks altergo.

It's been a fun and quite thought-provoking sector to look at - ostensibly these businesses don't really have much (if any) room for differentiation - barriers to entry are low, it's not like there's patentable technology involved and customers are, particularly with the rise of the internet, relentlessly price driven.

That makes the differences between them worthy of particular attention from an investment point of view. It's not something I've really done much of before, so I plan to keep track of the 4 of them and see how my calls hold up. I'm hoping Cambria/Vertu will be rerated in asset terms as returns improve with scale and time. If they don't, it's more lessons for me!

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alterego 7th Jun '13 3 of 5

In reply to post #73947

Well for someone who hasn't done much of it before, I thought it was very professional. I have held VTU for a couple of years. I originally purchased as part of a diversified portfolio of small stocks and it was the asset backing and the eventual recovery in the market for cars that initially drew me to VTU. Since then, I've been impressed by the experience of management and the careful use of cash to acquire under-performing businesses.

This inevitably means there is a drag on margins but since my shareholding is designed to be a LTBH, I'm happy to accept this. So far, they have made decent progress and with new car sales figures improving, I look forward to further appreciation. Your insightful comments have been very useful in adding to my understanding of the business (both VTU and car dealers in general). Thank you.

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DIYinvestor 6th Aug '13 4 of 5

I have come to the same conclusion, albeit by a slightly different route. My approach, using a combination of TA & Fundamentals added VTU to Mick's Radar on in May 2013 (at 41.25p), in a portfolio that has doubled in 19 months (see: Rolling 5 stock Portfolio Here).

Purely on a technical basis, it's possible that we may see sideways movement for a while before the next rise but we'll have to wait and see.

I also agree that car sales should pick up as we come out of recession - reminds me of Peter Lynch in 'One Up on Wall Street'.

Thanks for the detailed article.

Mick (

Book: Picking Winning Shares
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rbf 8th Dec '13 5 of 5

i wonder if you are planning an update? Recent results from all dealers extremely positive yet share prices now in decline (apart from CAMB).

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About ExpectingValue


Private investor turned hedge fund analyst, looking predominantly at global small caps. Sector agnostic.


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