Car dealers’ recovery potential

new car sales

A potential management buyout for Cambria Automobiles (LON: CAMB) at 80p a share could provide an indication about the attractiveness of the valuations of AIM-quoted rivals.

The Cambria share price increased 10p to 76p. The potential bid values Cambria at £80m. Net debt was £5.7m at the end of February 2021. Net assets were £71.7m, or £50.2m excluding intangibles, at the end of August 2020.

There are no forecasts for Cambria. Last year, underlying pre-tax profit was £11.1m, down from £12.3m. The potential bid represents nine times last year’s earnings and eight times the previous year when earnings peaked.

Trading in the first five months of this financial year is ahead of the same time last year. Interims will be published on 5 May.

Marshal Motor

Marshall Motor Holdings (LON: MMH) reported a 2020 pre-tax profit of £20.9m, down from £22.1m. Last year’s profit was better than forecast. A decline to £18.6m is anticipated this year.

Net cash was £28.8m at the end of 2020, while net assets were £215.6m, or £96.1m excluding intangibles. At 157p, Marshall is valued at £122.8m. The shares are trading at less than eight times 2020 earnings, rising to nine this year.

Vertu Motors

Vertu Motors (LON: VTU) will be reporting its figures for the year to February 2021 on 12 May. Pre-tax profit should be around £23m, which is similar to the previous year. A one-third like-for-like increase in commercial vehicle volumes has helped maintain profit. A decline in profit to £18m is currently forecast for 2021-22.

At 39.8p a share, Vertu is valued at £146.1m. Forecast net debt is £19.4m. The shares are trading on eight times estimated earnings, although that is expected to rise to ten in 2021-22. Net tangible assets were 46.5p a share at the end of August 2020.

Market

Lockdowns have hit new and used vehicle sales, although they have bounced back after exiting previous lockdowns. The AIM-quoted companies performed relatively well in some sectors of the market.

The proposed Cambria bid does not appear to be particularly generous at a low point for the sector. This does appear to be a good time to be buying motor dealers with strong balance sheets. They all have significant property assets.

Cost bases have been trimmed. Once trading becomes easier to forecast, they should also go back to paying dividends.

In the short-term, the Cambria share price will depend on the progress of the potential bid. Marshall Motor and Vertu Motors have potential upside, but investors may need to be patient.

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Andrew Hore
Andrew Hore is the publisher of AIM Journal, which is an online monthly publication covering the Alternative Investment Market.