Marshall Motor Holdings plc (LON:MMH) has announced H1 results, which were largely impacted by lockdown through key months of the year. Despite the obvious challenges, the cash performance has remained strong, and management are targeting break even for the year as trading from June has been strong with the September order take progressing well. We see MMH as a strong operator and believe it will emerge as a sector winner.
- H1 results: Clearly trading deteriorated sharply from 23 March to 1 June when all businesses were closed other than 62 strategic which remained open to support emergency services, commercial vehicle operators and key workers. As a consequence, revenues declined by 24.3% during the period, with LFL revenue -30.9%, which was driven by the impact of lock down. Gross margins were down 78bps YOY at 10.6% driven by a reduction in volume related income including OEM bonuses. The underlying loss before tax (pre restructuring costs, a profit on assets for disposal and items directly attributable to COVID-19) was £8.9m.
- Key drivers: MMH outperformed the new car market (-37.7% vs. the market at
- -48.5%) albeit with gross margins down 162bps to 6.0%. The key drivers behind this were OEM bonuses and a reduction in volume related income driven by significantly lower sales. MMH saw a LFL decline of 31.8% in used units during the period, with revenues -29.6%. Residuals have been very strong as we commented on in our sector note on 10 July, with management monitoring this closely and anticipating some levelling off in H2 2020. Gross profits fell from £33.5m to £24.3m during the period, with margins down 43bps to 6.1%. Aftersales operations were run at a small loss during lock down. LFL revenues were -28.5% with revenues falling from £129.5m to £100.3m during the period.
- Forecasts: We are forecasting MMH to reach break even to 2020E, but would highlight it requires H2 2020 to be stronger than H2 2019 as seen in our P&L model. However, we would note there are lower costs in terms of business rates YOY, which reflects a flat underlying trading performance. That said, if achieved, this would be a resilient performance and reflect strong market outperformance. The September order book is said to be “encouraging” at this juncture.
- Investment view: Looking beyond the current short term pressures, we continue to see Marshall Motor Holdings as a creditable and reliable platform, which we consider will emerge as a sector winner. We concur with the view that COVID-19 will accelerate consolidation in this industry, with fewer large scale players well placed to do this in the current environment.
