Marshall Motor Holdings plc (LON:MMH) is the topic of conversation when Zeus Capital’s Head of Research Mike Allen caught up with DirectorsTalk for an exclusive interview.
Marshall Motor Holdings is the 7th largest motor dealer group in the UK. The Group now operates 164 franchise dealerships representing 27 different brand partners in 37 different counties across England. This week, the company announced the acquisition of the entire issued share capital of Motorline Holdings and with me to discuss the news is Zeus Capital’s Mike Allen.
Q1: What were the key highlights from this trading update?
A1: We see this as a transformational acquisition, we know Motorline as well so we tracked that as a private company for many years and see it as a strong operator. Motorline consolidated revenue was nearly £700 million and last year generated an EBITDA of £10.8.
I think this will transform Marshall into a £3 billion revenue business. Motorline has got very strong assets, they’ve got net assets at completion of £30 million and they’ve also got £20 million of cash, £10 million of debt and about £21 million of freehold property.
So, the key thing for us is the fit of the business is very strong geographically but also this acquisition provides a scale entry into Toyota and Lexus so MMH will be a big player in those brands.
Motorline is also the second largest player in Hyundai as it is for Toyota and Lexus so it gives the company very good exposure to that area of the market. These brands perform very well from a supply point of view at the moment and we think these brands will continue to grow share in the UK market.
I think the other big point is MMH is already very big with Volkswagen Group and this deal allows them to get even bigger and I think that’s a big endorsement from an OEM that allows them to make this acquisition. We can’t also forget about Nissan and Peugeot as well which will add extra scale.
So, on the back of this deal, the company will now have about 85% brand coverage and we think that will enable significant synergies for used vehicle remarketing and fleet sales as well.
Q2: What impact will it have on your forecasts?
A2: To 2021, it won’t have a PBT impact, obviously it’s still very days but we envisage this transaction will deliver a £2 million pre-tax profit contribution in 2022 and that will increase to about £8 million by 2025 so it will be enhancing from 2022.
I think the other point to mention is the consideration of £64.5 is financed from the cash resources within the group at the moment as well and even after we put that consideration into this years number, we still expect them to have a small net cash position.
Q3: How is your long-term view of the stock changed?
A3: We’ve always had a positive long-term view on Marshall, it is a business that can consistently outperforms the market, it’s a strong platform, very good management team and excellent relationships with OEM’s.
So, we think this platform is in a good position to expand and grow and continue with that execution we’ve been used to over the coming years.
Q4: You mentioned that Marshall Motor Holdings consistently outperforms the market, why do you think that is?
A4: I think it’s a couple of factors, I think there’s a real attention to detail, both in terms of market trends but also on a per dealership basis, I think they’re always striving for more and run the business very tightly. Obviously, must have excellent people to deliver the financial results that they’ve got, they’ve got strong leadership and I think they work very well with all of their manufacturing partners as well.
I think this deal with Motorline underlines the relationship they have with OEM partners which I think in the coming years, with power changes and connected cars coming etc, it’s going to be critical.
