Vertu Motors “will emerge from this crisis stronger” says Zeus Capital

Vertu Motors plc (LON:VTU) has reported robust trading across the month of July, building on the strong trend seen over June. A July adjusted PBT of £7.4m (including £0.7m of restructuring costs) is ahead of both management expectations and the Group’s pre-Covid business plan, as ongoing pent up demand continues to drive a strong performance across new and used vehicle sales and aftersales services. The strong trading delivered since the majority of dealerships reopened on 1 June, alongside government support means the Group has generated an adjusted PBT of £2.2m YTD. This impressive performance looks set to continue into the crucial plate change month of September, where the Group’s new car retail order books are currently 20% ahead of prior year.

  • July trading: Group LFL new car retail volumes were +18.1% YOY in July, reflecting the strength of the market more generally, as pent up demand created by lock down continues to unwind. The Group delivered a record level of used vehicle gross profit in the month with used car LFL volumes +13.7% bolstered by a 0% finance offer, combined with strong used car margins resulting from ongoing supply constraints. Fleet activity remains subdued as demand for corporate contract hire and daily rentals remain impacted by the work from home trend, although Motability rebounded strongly +37.9% LFL YOY reflecting unsatisfied demand in the lock down. High margin aftersales services continue to run ahead of normal levels, with service gross profit +11.2% YOY.
  • Market consolidation: The financial position remains solid with net cash at 31 July. We believe the disruption resulting from Covid-19 will accelerate sector consolidation, with Vertu well positioned to scale and take share with key brands. Management have confirmed a number of acquisition opportunities are under consideration with progress expected in the coming months.
  • Forecasts: Both company guidance and our forecasts remain suspended in light of the ongoing and significant level of uncertainty surrounding the UK economy particularly around Q4, the impact of Brexit on demand and supply in the industry as well as the potential for a second wave of Covid-19. However, based on this performance and ongoing pent up demand we envisage Vertu may deliver a profit during H1. In addition if a strong September does materialise, it should underpin a decent H2 performance (H2 FY20: £6.4m PBT). 
  • Valuation: We continue to believe that Vertu Motors will emerge from this crisis stronger, with the ability to draw on its solid balance sheet to grow its franchised dealership operations. The Group will report interim results on 7 October.
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