Motor dealer Vertu Motors (LON: VTU) has announced the proposed acquisition of Helston Garages Group Ltd for £117m. This deal will be significantly earnings enhancing.
Helston Garages is based in the south west of England and it has 28 outlets. This takes the group into Volvo and Ferrari for the first time and boosts the exposure to upmarket marques. Helston Garages had already offloaded ten outlets – predominantly VW sites – prior to the purchase deal with Vertu Motors.
AIM-quoted Vertu Motors’ exposure in the south west of England will be much more significant. The purchase includes £66.7m of freehold property. Nearly all the outlets will be rebranded as Bristol Street Motors or Vertu. There is a limited amount of capital spending required on the outlets.
In 2021, the acquired businesses generated pre-tax profit of £17.9m on revenues of £489m. That is a particularly strong trading period for motor dealers and like Vertu Motors profit will have declined since then.
The deal is debt financed, although excluding car loans, there should be net cash by February 2023. FCA approval is required so there will be little or no contribution from the acquisition this year.
Zeus has increased its 2023-24 earnings per share forecast by 18.7% and by 24.7% for the following year when £3.2m of cost savings should be achieved. At 54.9p, up 6.5p on the day, the shares are trading on six times 2023-24 earnings, falling to just over five the following year. The share price is still well below the August 2022 net tangible assets of 71.2p a share, which will be slightly lower after this deal.