I've owned Vertu Motors (LON:VTU) for a couple of years now from low 40s. I believed this to be a well managed business with the ability to improve returns on capital as it digests and streamlines all the acquisitions it has made over time. But the virtue I saw I see no more.

I feel that recent announcements from the company have been dissonant with my outlook. Summary:

1) I don't like that they are back on the acquisition trail without proving out a stronger ability to generate returns on invested capital in the recent downturn for the sector.

They held up okay but I was looking for a bit more progress. They failed to convince me that acquisition was return enhancing as well as revenue growing. Over time they have issued a lot of equity to make these acquisitions. They have generated excess returns above the issued equity - positive. But that can be explained by general price inflation in the motors - a negative from the perspective of DIY improvements and a potential sector specific headwind that can arrive in future (potentially asynchronous with other economic factors).

In addition, since their acquisition of Bristol Street Motors way back in the beginning the number of units they sell has stayed flat to even a bit down despite many acquisitions since. This volume loss comes from closing down and selling off units. It means that revenue increases have been driven by increase in price of units sold (partly explained by the point above re price inflation and partly as Bristol was second hand motor sales and they have added a lot of new motor sales through subsequent acquisitions).

I was aware of above dynamics on getting involved in the stock but believed that management were in a process of transitioning to a phase of extracting more RoC juice from historic acquisitions...and 2017 and 2018 were the time to show something special. That they didn't leaves me thinking they are just picking up commoditised industry returns.

2) I'm not impressed with what I see as a pro-cyclical acquisition strategy with recent Mercedes acquisitions.

The group has been a lower and mid range car focused business. A lot of Ford and Vauxhall. A little counter to my…

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