I just don't see no Vertu no more

Friday, Jul 27 2018 by

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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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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3 Posts on this Thread show/hide all

mmarkkj777 28th Jul '18 1 of 3

I agree, unfortunately. I'm an ex holder.
Before joining Stocko, I used to filter for value and they always came up, so I bought them on a dip. I didn't lose really, other than the opportunity cost of not investing elsewhere. They may come good, but they seem more interesting in acquiring than in steady state performing (just my view, who knows how they will do in the future).

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Zipmanpeter 24th Aug '18 2 of 3

I also sold out at 50p. I think EVs are going to come faster than I once thought (govt now publically committed to phasing out diesel/petrol with specific dates, solar power costs tumbling), autonomous cars with build in radar to block bumps etc meaning less repairs; young dropping cars and happy with shared ownership.

Net bigger risk of them becoming (or being perceived as becoming!!) outdated.

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tony akram 8th Jan 3 of 3

I was a holder until recently but I am not sure if I have missed something

ie market cap is £136million yet on last full year accounts they had under tangible assets £198 m with £182m freehold property and long leasehold if this is the case does this mean they own property more than the current market cap !!!

If this is the case then is the downside somewhat protected I am sure I have been too simplistic in my approach but would welcome comments

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