Stock Brief - Vertu Motors (LON:VTU)

2nd Sep '21 by Keelan Cooper

12 comments 5547 reads

The Stockopedia community is an important driving factor of new investment ideas and individual equity analysis on the site. Plenty of knowledgeable contributors provide key insights on stocks of interest, or in areas of expertise, across different markets and geographies on a daily basis.

To focus more on community-led ideas, and in view of expanding our editorial coverage, we’ve decided to create ‘Stock Briefs’. These are shorter-form articles that will hopefully allow investors to quickly digest some of the key info about a security.

We have used our more rigorous Stock Pitch format to guide us on this, and we hope that our new ‘Stock Briefs’ will help provide a useful starting point for investors to carry out further due diligence.

Here’s an example of what this framework will look like…

The Investment Case

Vertu Motors is a leading automotive retailer with 155 outlets across the UK. The company’s share price has climbed over 60% since the start of 2021, but could still have further to run after upping guidance for this year on the back of strong demand and supply shortages in the industry.

It seems that the market is still trying to work out how to value automotive retailers on the back of these excess levels of profitability, and herein is where the opportunity may lie. After upgrading guidance for the second time in two months in August, Vertu Motors expects to generate profits before tax in the region of £50 to £55 million. Now, it remains to be seen how long this level of earnings will last, but this is remarkably cheap when you take into account the current market capitalisation of less than £200 million, and the strength of the balance sheet.

The strength of the balance sheet is what really differentiates Vertu Motors from its peers. The company holds £182m worth of tangible net assets, worth the equivalent of 50.2p per share.

Vertu Motors’ financial position gives it a unique advantage. It may decide to pursue acquisitions to make the most of current market opportunities, but the balance sheet strength equally provides investors with a notable margin of safety in the event that market conditions suddenly change.

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What are the company's principal business activities, how does it generate its revenues?

As an automotive retailer, Vertu Motors’ principal business activities involve the sale of…

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gus 1065

2nd Sep '21

Great initiative Keelan. I’ve taken the liberty of adding this to the Stock discussion thread index. Will add other future write ups in due course.

Gus.

Zipmanpeter

gus 1065 - I also took the liberty of bringing your stock discussion thread to the attention of the Stocko team via the green tab!

Single company extended commentary is a great addition to the community approach and the the daily SCVR - it both deepens and widens discussion (since any Mkt cap can be done) .

Let's hope more people like your thread.

Caper4

excellent Keelan. Many thanks for this new initiative which has considerable merit . Have been a shareholder of Vertu for many years and will continue to be so. Your stock brief explains quite clearly why it is such a fine well managed company .

Rambo

Excellent review Jack. I can only see the current situation a win/win for Vertu Motors (I hold) - Whilst the demand for new cars is low the demand/price of second hand cars increases, as new cars come on stream the demand for new cars will increase which I assume will have higher margins due the constrains on production. (more demand than supply) although at the same time the market for second and cars will also decrease - The key question IMO is the timeframe required for the market supply and demand of both new and used cars to reach some form of equilibrium. IMO again this is going to take some time, shortages of chips, covid uncertainity, employee return to work uncertainity all make it appear that the current situation in the car maket will remain like this for some time to come.

Kind Regards.

mortimer

as a retired motor dealer all i can say is dont fall in love with vetu in 2007 lookers was the best run co pendragon was taking on the world 2008 came along and kicked into space.

JCPr

I hold £VTU. On the positive side they do have a good online sales process albeit not the marketing budget of the 'disruptors'. They did point out that pure online sales were only a trivial percentage of their sales, but didn't put that down as a limitation of their online solution but rather down to the preferred behaviour of car buyers.

On the downside I think it is still necessary to consider the risk that the selling of cars under leasing arrangements might be classed as mis-selling at some stage in the future. It's a general industry practice but would affect Vertu Motors (LON:VTU) too.

Metatron

I hold but note in the long run car ownership is predicted to fall dramatically.More and more people will phone for Uber or a selfdrive car to pick them up.With new cars at the moment there are real logistic problems with getting parts.This is good news for the second hand car market

Philip999

5th Sep '21

Lovely read, such a difficult spot to value right now. Short term it really could either way, we know bumper profits are due but with lack of second hand cars available and semi conductor issues this could really hamper supply and hence sales could decline. Ultimately all car retailers will likely revery to low margin businesses so long term I'm not a fan.

Keelan Cooper

6th Sep '21

Hi Gus,

Thank you for this! The new discussion threads helped guide us in starting this initiative. We do have a great community here at Stockopedia, which is always a great source of inspiration!

Kind regards,

Keelan

JonBirdy

7th Sep '21

Great initiative, thanks Keenan. Perfect coffee break quick read to get you thinking.

Tommy H

10th Sep '21

I think that it would depend on where you live, because being in a small rural town, in large rural area we are still awaiting Channel 4, let alone decent broadband or mobile signal with more than 1 bar reception (whilst standing on the upstairs toilet, leaning out the window).

So there is going to be a divide here between Cities and large towns and then rural areas.

Having spent time working with things like planning for automated vehicles within cities, so main depot out of town for servicing and overnighting, versus in town sites to recharge batteries, clean up that coffee spill, cope with peak/off peak and surge demand (e.g. heavy rain). Thinking about repurposing multi-story car parks to do this for example.

So yes the future will be very different from now, but there is going to be a long journey to get there.

There is going to be a large generational difference to those who grew up with passing your driving test being a passage in life. To my nephew just did a crash driving course to get his license and buy a car because he changed job and needs a car and to drive to do the job, someone who never planned to drive having grown up and lived in cities his whole life.

There is also to consider the luxury factor, no different from now, the ability to show I can have, rather than I need. Do you need the Tesla S, or a Nissan Leaf? Do you need a personalized number plate? Again another wealth divide.

So there is going to be a need for car dealerships. It is going to be dependent on those who can change and adapt to an uncertain future, so that ability to flex to selling, reselling and servicing electric vehicles and all that.

Tommy

JESSE LIVERMORE

22nd Oct '21

The prodigious Interim profitability achieved the 6 months to 31 August increased the Tangible book value by over 20%. The Vertu Motors (LON:VTU) shares now trade in line with tangible assets, discounting a gloomy outlook for future profitability:

"Net tangible assets per share of 61.5p (28 February 2021: 50.2p) reflecting strong asset base, Net cash position and cashflow generation."

Stock Brief - Vertu Motors (LON:VTU)

The Investment Case

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Keelan Cooper

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