Small Cap Catch-Up: Vertu Motors And MPAC Group
Vertu Motors – Is Rylan About To Visit?
This group was formed in 2006 with the purpose to acquire and then consolidate within the UK motor retail sector – today it can claim to be the 3rd largest automotive retailer in the country.
It offers both new and used cars, vans and motorcycles nationwide.
The range of products includes cars, vans, parts and accessories, motorcycles and fleet vehicles.
The group’s services include service and repairs, book a service, book an MOT, priority service plan, seasonal offers, accident and repairs, parts and accessories and others.
Its owned trading brands include Bristol Street Motors, Macklin Motors, Vertu Motors, Vertu Motorcycles, Car Credit Assured, Vertu Group Fleet, What Car? Leasing, PowerBulbs, Vertu Lease Cars, Vansdirect, The Taxi Centre, WiperBlades.co.uk, Carrs Ferrari and Ace Parts.
The company operates over 191 franchised sales outlets and four non-franchised operations from a total of 145 locations across the UK.
Its motor dealerships offer sales, servicing, parts and bodyshop facilities for new and used cars and commercial vehicles.
These dealerships fall under the trading names Vertu Motors, Bristol Street Motors and Macklin Motors.
Manufacturer partners are Audi, BMW, Citroen, CUPRA, Dacia, Ferrari, Ford, Honda, Hyundai, Jaguar, Kia, Land Rover, LEVC, Mazda, Mercedes-Benz, Mercedes-AMG, MG, MINI, Nissan, Peugeot, Renault, SEAT, SKODA, smart, Toyota, Vauxhall, Volkswagen and Volvo.
In early December last year, the group announced a Trading Update for the three months to end November 2023, outlining the impact of a number of negative external market factors resulting in profitability for the year to the end of February 2024 to now be expected to report lower than current market estimates.
CEO Robert Forrester stated that:
“The current consumer environment remains volatile and recent trends of sluggish new car retail demand and weakness in used car pricing are likely to persist for some months.
Vertu remains very focused on delivering outstanding customer experience, tightly controlling inventory and being diligent on costs.
The Group has a strong balance sheet and long track record of operational excellence and financial discipline.
These attributes mean we remain very confident in our ability to take advantage of these challenging market conditions and the resulting increased opportunities in the sector.”
In a report published shortly after the Update, analyst Carl Smith at Zeus Capital downgraded his estimates for the current year by 17% and by 6.2% for the coming year.
He goes for revenues this year of £4.77bn (£4.01bn) and adjusted pre-tax profits of £39.3m (£39.3m), dropping earnings to 8.2p (8.7p) with 2.0p (2.2p) per share in dividends.
For the year to end February 2025 his figures allow for £5.0bn sales, £48.6m profits, 10.0p earnings and a 2.5p per share dividend.
Smith believes the Vertu Motors shares to be undervalued, particularly given its strong asset backing.
The analyst rates the group’s shares as a Buy, looking for 108p a share in due course.
The group’s shares peaked at 88.02p on 9th November last year and fell back to just 67.00p on Monday of this week, with a massive 6,054,196 shares traded on the day, a substantial increase on the near 1m daily dealing average.
With some 343m shares in issue, the larger holders include TDR Capital (9.04%), Tweedy Browne (5.02%), FIL Investment Advisors (5.21%), Burgundy Asset Management (5.03%), Janus Henderson Investors (4.46%), Santander Asset Management (4.26%), Close Asset Management (4.01%), and Nivag Holdings (3.33%), while CEO Robert Forrester holds 2.21% of the equity.
But now going through that list of holders, it gets very interesting when TDR Capital is holding the biggest chunk of Vertu’s share capital, on behalf of Cinch Holdco Uk.
Cinch is that very well advertised online car buying and selling website, fronted by Rylan Clark, the 36-year-old media personality.
Cinch just happens to be a spin-out from British Car Auctions, which is the UK’s largest used vehicle business, operating end to end vehicle remarketing services connecting buyers and sellers.
So why is Cinch involved in the Vertu Motors equity – having more than trebled its holding in the last two months?
Is a merger or a takeover in prospect?
It looks as though matters may well be hotting up a bit, could an approach be made before or after the next Trading Update, to cover the year to end-February, being issued at the start of March.
The shares closed last night at only 70.50p valuing the whole Vertu group at just £239m, for a group making £40m profits and turning over almost £5bn a year.
Trading on 8.5 times current year earnings and just 7 times prospective, the shares at 70.50p look to be a spicy investment.
I now set a new Target Price of 87p for 2024.
(Profile 12.10.19 @ 30.5p set a Target Price of 40p*)
(Profile 17.01.24 @ 70.5p set a Target Price of 87p)
MPAC Group (LON:MPAC) – Shares Are Packaging Up Well
Yesterday the shares of the Tadcaster, Yorkshire-based high-speed packaging and automations solutions group, chased away rising some 5.75% on the day, up 20p to 345p last night.
Formerly known as Molins, the company was formed in 1874.
It provides packaging and automation solutions to healthcare, clean energy, and food and beverage sectors worldwide and operates through two main segments – Original Equipment, and Service.
The company designs, develops, manufactures, and engineers packaging solutions; offers automation and secondary packaging equipment, end-of-line robotic with integrated testing solutions, and at line instrumentation solutions; and designs and integrates packaging systems.
It also offers trayformers, cartoners, carton closers, case erectors and case packers, and labelling machines.
Leading names amongst its global client list include Diageo, 3M, Smith & Nephew, Kraft, Philips, Panasonic, Kimberly Clark, GSK, Johnson & Johnson, and Abbott.
Last week’s Trading Update for the year to end December 2023, guided that pre-tax profits in the second half period were substantially above those of the first half, and were helped by better margins coming into play.
The company declared that its order intake, from the growth sectors in which it operates of healthcare, food and beverage and clean energy, has been strong and saw the company ending the year with an increased closing order book value of around £75.0m (£67.2m), while giving it a good coverage of analyst’s 2024 forecast revenues.
The increasing value of the order book and a broadening prospect pipeline leaves the group well placed to deliver on its expectations for the current financial year and beyond, while continuing to progress Mpac’s long-term growth strategy.
CEO Adam Holland stated that:
“We are pleased with the full year performance which is in line with market expectations.
The Group continued to gain momentum through the year and we will report a substantial increase in revenue and profitability in H2 2023 over H1 2023.
Mpac’s balance sheet remains strong, and we closed 2023 with positive net cash, in line with our expectations.
FY23 order intake was the highest ever for Mpac and was comfortably above 2022.
We start 2024 with an increased order book from our resilient end markets and a high level of coverage of forecast revenue, supporting delivery of our expectations for further growth in the year ahead.”
Well, that statement really encouraged analysts following the group.
It confirmed the views of analyst Edward Maravanyika, at Liberum Capital, who initiated coverage on 8th January with a Buy note at 292.5p, as well as a 500p Price Objective on the shares.
The Trading Update three days later confirmed his view about the upside case.
He estimates that the 2023 revenues will be around £108m (£98m) with pre-tax profits more than doubling to £7.4m (£3.5m), lifting earnings to 24.6p (13.1p) per share.
For the current year he goes for £117m sales, £10.7m profits and 38.4p per share in earnings.
The year to end 2025 he sees a £129m turnover, £12.6m profits and earnings of 45.3p.
House broker Shore Capital is excited by the group’s prospects, predicting a cash flow analysis valuation of over 400p a share.
Their analysts Robin Speakman and Akhil Patel have pencilled in 2023 revenues of £106.3m, £6.9m profits, with 26.3p earnings.
For this year they go for £120m turnover and £10.5m profits, generating 38.7p in earnings per share.
They suggest the 2025 year could see £132.5m sales and £12.3m profits, worth 44.6p per share in earnings.
On the basis of the analyst estimates the shares of MPAC Group look to be a cracking investment, at around last night’s closing price of 345p, the company is valued at just over £70m – that is cheap!
The shares are a strong Hold for existing shareholders and a bargain for new ones too.
(Profile 19.12.19 @ 182p set a Target Price of 235p*)
(Asterisks * denote that Target Prices have been achieved since Profile publication)
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