Marshall Motor Holdings plc (LON:MMH) has announced an exceptional set of H1 results demonstrating strong market outperformance across the board, hitting record levels of revenue, PBT and gross margin. We have upgraded our forecasts post the update last week, and reiterate our view that this is a strong and reliable platform that looks significantly undervalued.
- H1 results: H1 underlying PBT was at record levels at £38.4m vs. a loss last year of £11.8m, even after repaying the £4.0m of furlough support received in 2021. Revenue during the period was +49%, with LFL revenue +49.9%, reflecting strong market outperformance in both new and used vehicle sales. Gross margin in H121 was 11.8% and 117bps ahead of the prior year, with used vehicle margins +246bps at 8.6%. Underlying operating costs were £12.9m higher than last year, in part because of the furlough support received in H1 2020. That said, underlying costs were lower than 2019 levels despite acquisitions adding c. £16m of costs, although the Group did benefit from £4.7m of business rates relief during the period. Due to the planned increase in the corporation tax rate to 25% from April 2023, there was a non-underlying accounting tax charge of £7.4m.An interim dividend of 8.86p was declared, and adjusted net cash stood at £57.2m (>70p per share).
- Key drivers: As previously flagged, the used car market has been exceptionally strong during the period with MMH continuing to outperform. LFL units were +51.7% YOY, with LFL revenue +56.3% on the same basis. Data from Auto Trader showed used car vehicle transactions +31% highlighting the extent to its market outperformance. Gross profits went from £24.3m in H1 2020 to £53.2m in the period, with margins advancing from 6.1% to 8.6% in the period. Total new car revenue during the period was £610.5m and +47.4% on a LFL basis. Gross profits were up £16.9m in absolute terms, with margins +85bps to 6.9%. All of the aftersales operations remained open throughout the closure of its retail showrooms from 4 January to 12 April 2021. Revenues were +31.8% with LFL revenue +34.8%. However, due to the ongoing impact of COVID-19, H1 2021 revenues increased by just 2.0% vs the same period in 2019. Gross margins advanced by 171bps to 46.8% during the period.
- Forecasts: Following the statement last week that underlying PBT for the full year would be no less than £40.m, we have increased our 2021E forecast to £42.1m. Our forecasts could well prove conservative in light of the H1 performance and likely to be dependent on how the Group performs in September. While order book intake appears to be healthy, we do expect supply issues to bite as we saw in the July SMMT data last week.
- Investment view: We re-iterate our view that Marshall Motor Holdings has a creditable and reliable platform, which we consider will emerge as a sector winner. A 2021 P/E of 5.9x and a yield of 5.4% looks at odds with the progress delivered to date.
