Motor Retailers - time to buy?

Thursday, Jan 12 2017 by
11

One of the sub sectors that got hammered the most after Brexit was the motor retailers. Although they are slightly up from their lows the shares are still up to 30/40% below where they traded before Brexit. The reasons are the continuing fears of a recession and the decline in sterling which makes importing new cars more expensive for retailers.

I think these fears are ill founded. Firstly, it appears the economy is doing fine. The online and high street retailers have generally reported strong trading and it has been noted that economic forecasters have had to admit they got their prognosis of the effects of Brexit hopelessly wrong. Secondly, sterling has recovered slightly from its lows and in any case motor retailers have managed to partially defray the cost of higher imports. Also, car retailers are more dependent on sales of second hand cars and after sales service which are both doing well.

There has been little news from the sector since Brexit but we will be hearing more over the next couple of months that should confirm robust trading. Cambria Autos had a trading statement on January 4th that reiterated that it would meet expectations. Marshall Motor issued a unscheduled trading statement in October stating it did not understand why its share price had declined so markedly and today issued a trading statement that was in line with expectations. It said that the new car was expected to decline but overall it was trading well.

Generally, these shares have been trading sideways for the last few months on minimal volume as the market is not prepared to buy into the idea that profits will not collapse. On the Stockopedia stock ranking system they have poor momentum as the share prices have been static in a rising market but the value rating is over 90% for most of them with PEs well into single digits and some good divdend yields available. If the sector does come back into vogue the shares are likely to move very quickly as the companies are mostly small cap illiquid shares.

One of the larger stocks that is traded more heavily is Pendragon, a FTSE 250 company. It has been buying back its own shares recently and there are signs the shares are poised to break. A chartist would be very excited by…

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Pendragon PLC is an automotive online retailer. The Company's principal market activities are the retailing of used and new vehicles and the service and repair of vehicles (aftersales). Its segments are Stratstone, which consists of its vehicles, truck and commercial vans brand, including the sale of new and used motor cars, motorbikes, trucks and vans, together with associated aftersales activities; Evans Halshaw, which consists of its volume brand, including the sale of new and used motor vehicles and commercial vans; US Motor Group, which consists of its retail operations in California in the United States, including the sale of new and used motor cars; Pinewood, which consists of its activities as a dealer management systems provider; Leasing, which consists of its contract hire and leasing activities; Quickco, which consists of its wholesale parts distribution businesses, and Central, which represents its head office function and includes all central activities. more »

LSE Price
9.68p
Change
-0.7%
Mkt Cap (£m)
136.2
P/E (fwd)
13.9
Yield (fwd)
9.1

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 »

LSE Price
56p
Change
 
Mkt Cap (£m)
56.0
P/E (fwd)
5.8
Yield (fwd)
1.8

Marshall Motor Holdings PLC is a United Kingdom-based automotive retail company. The Company operates through the retail segment, which includes sales of new and used vehicles, together with the associated ancillary aftersales services of; servicing, body shop repairs and parts sales. It operates approximately 106 franchise covering 23 brands, operating from approximately 84 locations across 27 counties in England. In addition, it operates five trade parts specialists, three used car centers, five standalone body shops and one pre delivery inspection center. The Company’s dealership brands includes Audi, BMW, Ford, Honda, KIA, Maserati, Mercedes Benz, Skoda, Volkswagen, Volvo, Nissan and Land Rover. more »

LSE Price
146.1p
Change
0.4%
Mkt Cap (£m)
113.7
P/E (fwd)
6.5
Yield (fwd)
5.9



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11 Posts on this Thread show/hide all

aflash 12th Jan '17 1 of 11
3

I have traded in and out of this sector since Brexit.
It remains interesting for all the reasons Paul has given, mainly recurring vehicle servicing income, freeholds and dividends.
Your macro call may be right but looks wrong to me.Sterling is hardly off its lows and there may be a crisis looming with a hard Brexit. Neither would I speculate on the economy being fine or the car dealers' announcements moving the share prices.
For this reason my only conviction hold is INCH Inchape because it has dealerships in Malaysia. The price performance is proving me right so far.
I have sold out of LOOK Lookers three times, twice at a profit but it has kept going. None now.
I have tried to buy more MMH Marshalls many times but was beaten back by the enormous spread. Until today it appeared the best bargain.
The cheapest on Price to Book grounds is CFYN Caffyns but I only want to pay around 5 pounds per share and it has only been that low once, shortly after Brexit. I missed it.
Some subscribers dislike CAMB Cambria because of the directors (pay and holdings) but I am happy to buy and sell. Bought 63, Sold 65, back in recently and slightly underwater.
VTU Vertu = Bought 37 Sold 49. Back in recently and slightly underwater. Surprisingly there appears to be more volume in VTU than in LOOK which has twice the market cap. Maybe that explains why there is less fluctuation and LOOK gives better trading opportunities despite the 1 pound price against VTU's 40p.
PDG Pendragon has Price to Tangible Book of 17,7 up from 14,3 when I first rejected it.
Hope that helps. It helps me put my thoughts together!

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Carey Blunt 12th Jan '17 2 of 11
4

I agree with the points above about them looking good value but it's hard to see when the value will out, too far in the future I think and so I'm staying out until the macro situation is clearer.
I like Vertu Motors (LON:VTU) best of the bunch but have held Lookers (LON:LOOK) previously with some success.
An insider at Pendragon (LON:PDG) hinted mysteriously to me that now would be a good time to buy their shares and suggested they were planning something big but it could just be insider optimism.
Maybe they are thinking of buying one of the smaller listed players? Not sure who the best target would be.

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Trigger14 12th Jan '17 3 of 11
3

Car retailers are too low margin and cyclical for me but Maynard Paton has done some analysis of Cambria Automobiles (LON:CAMB) that might be of interest at http://maynardpaton.com

Blog: Quality Share Surfer
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herbie47 12th Jan '17 4 of 11

I sold my Cambria Automobiles (LON:CAMB) after Brexit vote. I think it's too early to be buying shares in this sector. As for economists getting it wrong yes but then Brexit has not even started yet, most assumed that article 50 would have happened soon after the vote and certainly last year. Until that happens and things start to change I think it's too early to tell what will happen.

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dfs12 13th Jan '17 5 of 11
2

The missing component of this sector is Momentum. Quality and Value are not a problem. Having read the recent reviews of performance from Ed, Paul and the Mechanical Bull there is a consensus that momentum is critical. Encouragingly Vertu Motors (LON:VTU) and Lookers (LON:LOOK) are both showing little green upward arrows on their momentum ratings this morning (up 11 and 12 places in the last 30 days). So perhaps this is about to turn into a hot sector? As a holder of both I'm hopeful!

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tscott 13th Jan '17 6 of 11
2

Thanks for comments. As well as Vertu and Lookers I think that Pendragon is showing a bit more momentum. Although it may be too early I believe the sector is discounting a collapse in profits that is consistent with a recession that may not come. For instance, Marshalls which had a reasonable trading statement yesterday is on a prospective PE of just 4.8x and a similar dividend yield so clearly the market does not believe the numbers. If investors twig that profits may not collapse as much as expected the shares could move fast as often happens in neglected smaller companies. We have seen some encouraging signs with other domestic cyclicals recently, albeit mostly larger companies, such as general retailers and banks (e.g. Lloyds which I still believe is cheap).

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gus 1065 7th Feb '17 7 of 11
1

Shares in several of the motor dealerships seem to have ticked up in the past couple of weeks. Cambria Automobiles (LON:CAMB) , for example, was up a further 7% today and is up over 20% since the lows at the back end of 2016. Probably premature to call it a re-rating but sentiment certainly seems to be more favourable.

Gus.

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bestace 7th Feb '17 8 of 11
2

In reply to post #170608

It's also just broken out of the downtrend which started over a year ago

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tscott 8th Feb '17 9 of 11
2

Marshalls is another one that has broken up recently (up 20% in the last month) and yet is still only a prospective PE of 5.5x on current estimates. Despite the recent rallies they are generally still well off their pre-Brexit highs and with these sort of valuations the market is expecting significant profit downgrades to come which is consistent with a recession. Therefore, either the downgrades will come or the shares will go up quite a lot more. The recent share price rise reflects continuing evidence that the economy is proving more resilient than expected but there is still a lot of uncertainty and pessimism around keeping a cap on the sector.

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herbie47 25th May '17 10 of 11

I have read new car sales are down 20% in April compared to last year, this seems a pretty large fall, reading other reports seems consumers are not spending so much this year. Maybe after the election things will pick up?

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rhomboid1 25th May '17 11 of 11
3

In reply to post #188924

They're only down that much because of the new RFL regime coming in creating a pull forward;

https://www.whatcar.com/advice/buying/ved-car-tax-changes-in-2017-what-do-i-need-to-know/

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