Vertu Motors “is well placed to emerge stronger from this downturn” says Zeus Capital

Vertu Motors plc (LON:VTU) has reported a strong performance for the month of June, following the reopening of all showrooms in England from 1 June and 12 Scottish showrooms reopening on 29 June. Adjusted PBT of £9.0m for the month is ahead of prior year and above the Group’s pre-Covid business plan of £8.6m whilst net cash of £9.7m at 30 June reflects impressive working capital management.

  • Strong June trading: Performance has been strong across all business areas. New retail sales volumes were +0.9% YOY on LFL basis, versus the 19.2% market decline reported by SMMT. The strong retail performance is being attributed to pent up demand with consumers having increased savings ratios during lock down, additional disposable income resulting from cancelled travel plans and a desire to avoid the use of public transport. Demand was also strong in used cars where supply constraints are resulting in margins significantly above normal levels. High-margin aftersales activity saw increasing momentum throughout lockdown and into the month, benefitting from pent-up demand. In contrast, Fleet remains weak (-53.2% YOY) impacted by softness in the Motability segment, which is reported to have reversed in July, as well as reduced demand in daily rental. Adjusted PBT of £9.0m was despite a lack of quarterly OEM volume bonuses, partly offset by Government support. The Group received £3.3m in furlough grants in the month with 75% of its workforce actively at work by 30 June (up from 37% on 1 June).
  • Impressive cash performance: The Group ended June with net cash of £9.7m, an improvement of some £49.2m versus that reported on 22 May driven largely by a targeted reduction in used vehicle stock with all rent and tax payments up to date. Whilst this working capital benefit is expected to partially unwind as the Group moves towards more normalised trading, it reflects the Group’s typically impressive balance sheet discipline.
  • Technology advancing:  The unprecedented trading conditions resulting from the impact of the coronavirus has led to an acceleration of technology uptake across the group. A number of developments have been rolled out, including improved buy on-line and ‘reserve it now’ functionality, fully paperless sales processes with the ability for customers to sign via SMS messaging and enhanced integration of administration processes, all of which has helped to drive efficiency improvements. As a result, the Group now expects to reduce headcount by c.6% over the next month. This, along with other cost saving initiatives, is anticipated to deliver ongoing annualised cost savings in the region of £10m. 
  • Valuation: Forecasts remain suspended given ongoing uncertainty. Whilst the strong June performance is likely to reflect in part the one-off benefit of pent-up demand and Government support, we believe Vertu Motors is well placed to emerge stronger from this downturn, utilising its solid balance sheet position to expand its estate and deliver for shareholders.
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