Inchcape “remains well positioned over the medium term” says Zeus

Inchcape plc (LON:INCH) has delivered a strong start to the year, showing 13% Q1 organic revenue growth, a recent Distribution acquisition in Chile as well as the sale of the Russian business agreed. The Group now expects adjusted PBT for FY22 to be at least £300m, which will trigger some upgrades to our assumptions. We continue to believe Inchcape remains well positioned over the medium term, and the recent de-rating of the shares presents a good entry point.

¨ Q1 trading update: Q1 revenues were £1.8bn and +13% on an organic basis (ex Russia), with Distribution +11% and Retail +18% on the same basis. Across most of its markets, Inchcape continues to see robust consumer demand, supply shortages but higher margins and record order books for new vehicles. This is expected to remain the case for the rest of the year. The sale of the Russian business has been agreed to local management led by the current local CEO and CFO. This is expected to close in May, with a payment price of €76m (£63m) that will be deferred over a period of 5 years through annual instalments. This will crystallise an exceptional loss before tax of c£240m, of which c£140m relates to FX losses.

¨ Key drivers: Distribution saw revenues ahead of the prior year and Q4 2021 driven by the Aftermarket supporting performance against lower supply. Performance within the regions was consistent vs. H2 2021 with particular strength in the Americas and Europe. Retail saw strong growth in the UK despite low supply, albeit this was against weak comparatives from Q1 last year when it was significantly impacted by COVID.

¨ Forecasts and outlook: We continue to believe that both organic and acquisition-led growth across the Group’s geographically diverse Distribution business will offset the profit impact of the cessation of Russia retail operations. The Distribution market is highly fragmented, providing M&A opportunities that the Group has the firepower to execute on, as highlighted by last month’s acquisition of Ditec, the distributor of Porsche, Volvo and Jaguar Land Rover in Chile. In terms of UK retail, we note the macro headwinds and ongoing new car supply shortages worsened by the war in Ukraine, but expect continued supply shortages to bolster margins in new and used vehicles. We will reassess our forecasts post the 8:30am analyst meeting, but the Group has given clear guidance that adjusted PBT will be at least £300m (+25% YOY, FY21: £240m ex. Russia), which implies small upgrades to our forecasts.

¨ Investment view: Since the Russian invasion of Ukraine, Inchcape has experienced a de-rating, falling from a P/E of 15.4x FY22 earnings in our 24 February note to only 11.8x today, using latest Zeus forecasts. In our view, this derating has been overdone, given the relatively small proportion of total profits from Russian retail. The current valuation is attractive compared to the average of UK support services peers (20.6x P/E FY1) and global distribution peers (15.7x P/E FY1), especially with the Group’s track record of strong FCF generation (88% in FY21), high ROCE (30% in FY21), disciplined capital allocation policy, and significant M&A firepower. At these levels, with Inchcape’s high earnings quality and growth prospects, we think the shares are considerably undervalued.

Summary financials

Market Cap£2,518.7m
Shares in Issue378.4m
12m Trading Range615.5p– 940.5p
Free float94.00%
Next EventInterim results – 28 July

Financial forecasts

Yr end Dec (£’m)2021A2022E2023E2024E
yoy growth (%)
Adj. EBIT328.1331.3346.9370.5
Adj. PBT296293.3306.9328.5
EPS (p) dil. adj.55.656.660.364.6
DPS (p)22.522.924.426.1
Net cash^378.8353.5422524.7
P/E (x)1211.811.110.3
Div yield (%)

Source: Audited Accounts and Zeus estimates

^Excludes IFRS 16 lease liabilities

Click to view all articles for the EPIC: ,
Or click to view the full company profile:
    Share on facebook
    Share on twitter
    Share on linkedin

    More articles like this

    Fintel plc

    Fintel core revenue growth is higher than Zeus forecast

    Fintel plc (LON:FNTL), the leading provider of Fintech and support services to the UK retail financial services sector, has released a trading update for the six months to 30 June 2022, which reveals: Core revenue grew c.9% to

    Shoe Zone plc

    Shoe Zone analyst Zeus upgrades FY22 adjusted PBT forecast

    Shoe Zone plc (LON:SHOE) Better than expected demand and further strong margin performance leads to an upgrade in FY22E adjusted PBT from “no less than £8.5m” to “no less than £9.5m”. Zeus revenue forecasts increase by £1.5m (1.0%)

    OnTheMarket Plc

    OnTheMarket analyst Zeus confident in forecasts

    Foxtons, one of London’s leading estate agencies with more than 50 interconnected branches across London, has signed an agreement to advertise its UK residential sales and letting properties at OnTheMarket plc (LON:OTMP). Zeus view: Foxtons, the well-known London

    SpaceandPeople analyst Zeus restores estimates and valuation

    SpaceandPeople plc (LON:SAL) secures, sells, and manages flexible space for brand experiences, short term promotions and retailing in high footfall venues for its customers, including in shopping centres and travel hubs. The Group has issued a positive pre-close

    Lookers Plc

    Lookers shares are still undervalued says Zeus

    Lookers plc (LON:LOOK) has released an H1 trading update reporting a continuation of strong performance year to date. H1 2022 underlying PBT is expected to be c. £45m and Management anticipate full year PBT will also be ahead

    SysGroup plc

    SysGroup analyst Zeus forecast a 39.0% increase in revenue in FY23

    SysGroup plc (LON:SYS) is an award-winning provider of managed IT services, cyber security, cloud hosting and IT consultancy. The Group offers investors an attractive business model with high recurring revenue and a diversified customer base. SysGroup is competitively

    AFC Energy

    AFC Energy’s long term opportunity remains vast says Zeus

    AFC Energy plc (LON:AFC) has signed an agreement with another leading UK construction/infrastructure player, this time in Kier Group. We believe this further endorses our long term thesis that AFC will play an active role in encouraging the


    Inchcape performance exceeding expectations says Zeus

    Inchcape plc (LON:INCH) has released another positive trading update, with performance exceeding expectations so far this year. This follows on from a positive Q1 update on 28 April. Through quarterly improvement in Distribution volumes and operating margin, the

    boohoo Plc

    Boohoo Group analyst Zeus sees a strong performance in Q1

    ¨ Q1 financial highlights: Boohoo Group plc (LON:BOO) revenue of £445.7m is -8.3% YOY vs. a strong comp (Q1 FY22 revenue +32.1%), in line with Zeus’s forecast and management’s previously stated guidance. Gross sales growth remained positive +9%

    No more posts to show