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

Price666.0p
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
Revenue7,640.107,819.008,083.808,365.80
yoy growth (%)11.72.33.43.5
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
EV/EBITDA (x)5.14.94.64.1
Div yield (%)3.43.43.73.9

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
    Facebook
    Share on twitter
    Twitter
    Share on linkedin
    LinkedIn
    Inchcape

    More articles like this

    Redde Northgate buy back own shares

    Redde Northgate plc (LON:REDD) have today announced that on the 5th May 2022 it purchased the following number of its own shares to be held in treasury: Class of shares :  Ordinary shares of 50p (“shares”) Number of shares

    Inchcape

    Inchcape continues to see robust consumer demand says Zeus

    Inchcape plc (LON:INCH) Q1 trading update last week showed a strong start to the year, with revenue up 13% organically vs. Q1 2021. We upgrade our FY22 underlying PBT forecast by 2.4% to £300.3m, reflecting Management’s guidance of

    boohoo Plc

    boohoo group total group sales +61% since FY2020

    boohoo group plc (LON:BOO) have today published final results for the year ended 28th February 2022. Investing for the future ·    Significantly increased market share in the UK and US since FY2020. Total group sales +61% since FY2020 ·    Extended target addressable

    Fintel plc

    Fintel Plc appoint Phil Smith as Non-Executive Director

    Fintel plc (LON: FNTL), the leading provider of Fintech and support services to the UK retail financial services sector, has announced the appointment of Phil Smith as Independent Non-Executive Director with immediate effect. Following a robust process led by independent

    STRIX GROUP PLC ORD 1P

    Strix Group confirm final dividend, annual report and notice of AGM

    Strix Group Plc (LON:KETL), the AIM quoted global leader in the design, manufacture and supply of kettle safety controls and other complementary water temperature management components, has announced a reconfirmation of its final dividend, and in addition, has made available

    Inchcape

    Inchcape expanding into the Caribbean with ITC and Simpson Motors

    Inchcape plc, (LON:INCH), the leading global automotive distributor, has announced that it has completed the acquisition of the ITC Group, owner of Interamericana Trading Corporation (ITC) and Simpson Motors from the Simpson Group. The acquisition expands Inchcape’s global

    Pendragon plc

    Pendragon underlying Profit before Tax of £18.7m, up 73.1%

    Pendragon plc (LON:PDG) has announced its interim management statement. This Interim Management Statement covers the period from 1 January 2022 to 31 March 2022.  Unless otherwise stated, figures quoted in this statement are for the three months ended

    SpaceandPeople returns to profit

    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 full year results

    Tatton Asset Management Plc

    Tatton Asset Management Directors increase shares in company

    Tatton Asset Management PLC (LON:TAM), the investment management and IFA support services group, has announced that it has been notified that Paul Hogarth and Paul Edwards, each of whom are directors of the Company have purchased, in aggregate, 32,808

    SpaceandPeople back into profit and positive earnings per share

    SpaceandPeople plc (LON:SAL) the retail, promotional and brand experience specialist, has announced its final results for the year ended 31 December 2021.   Financial Highlights ·       Revenue of £4.0 million (2020: £2.8 million and 2019: £7.7 million) ·       Operating profit of £0.2 million

    Oncimmune awarded Queen’s Award for Enterprise in Innovation 2022

    Oncimmune Holdings plc (LON:ONC), the leading global immunodiagnostics group, has announced that it has been awarded the Queen’s Award for Enterprise 2022 in the innovation category, endorsing Oncimmune as a leading developer of applied immunodiagnostics for the early

    No more posts to show