SIF Folio: Vertu Motors Could Tick All The Boxes

22nd Jun '21 by Roland Head

29 comments 3985 reads

In last week’s SIF update I tweaked my screen to find new stocks and found that electricity utility Drax was a near-perfect match for the buying criteria I use in this rules-based portfolio.

This week I’ve tried a slightly different approach, stripping out my dividend requirements to find companies whose payouts were suspended last year but which otherwise pass all of my tests. I was hoping to find a company whose dividend is expected to resume this year in line with pre-pandemic levels, rather than being rebased -- or cut, as you and I might call it.

Car dealership group Vertu Motors (LON:VTU) ticked all of the boxes in my screen except for a dividend payout. Fortunately, management have already said they’re confident dividend payments will be resumed for the current (FY22) financial year. Broker forecasts suggest a payout of 1.6p per share this year, only marginally below the FY20 payout of 1.65p per share.

(Of course, these are only forecasts at this stage, but I feel it’s reasonable to compare them with similar forecasts for other companies which suggest material dividend cuts are likely when payouts resume.)

Vertu Motors (LON:VTU)

AIM-listed Vertu was founded by CEO Robert Forrester in 2006, to act as a consolidator of UK motor retail businesses. Its best-known brand is probably Bristol Street Motors, but Vertu also operates under a number of other brands. The company says it is now the fifth-largest motor retailer in the UK, with 149 outlets representing many of the major manufacturers.

The three executive directors all worked together at dealership group Reg Vardy until 2006, when that company was sold to listed operator Pendragon.

Vertu has a market cap of £163m and turnover of £3.1bn, pre-pandemic. Margins are low, as is the norm in this sector, but the group has a strong balance sheet and has historically been quite cash generative.

Stockopedia’s algorithms like the stock, awarding it a StockRank of 98 and Super Stock status.

MGg6UetLdr72U95r51bCbO9cpSwn1kvsHsonRpQz

I’ve taken a look at the numbers behind these factor scores to find out more. Should I add Vertu Motors to SIF?

Value: below net asset value

Car dealership groups usually trade on modest multiples of earnings, so I’d expect Vertu to score well for…

Unlock with Email

Unlock with Google

Already have an account?
Login here

Roland Head

22nd Jun '21

Hi Paul,

Thanks for the feedback - good point about SIF (which stands for Stock In Focus).

I try to include periodic refreshers about the concept behind this rules-based portfolio but I haven't done one for a while. I'll include something next time.

In short, I use a set of screening rules to create a shortlist of stocks that are eligible for the portfolio. Here's the current screen:

https://www.stockopedia.com/sc...

I then choose which stocks to add to the portfolio, making sure that I'm comfortable with them and that they create a reasonably diversified portfolio (although this is subjective).

I use a second, more lax set of criteria to govern when I should sell stocks. You can see the latest monthly write-up (for May) here:

https://www.stockopedia.com/co...

Regards,

Roland

Hi Dicky,

I include a full snapshot of the portfolio and discuss recent performance in my monthly write ups.

The latest one (from May) is here:

Hope this helps!

Martinus 67

Roland, thanks very much for your analysis of this company and your explanation.

Maybe I’m a bit thick but when you said the following statement this it got me a bit confused (not too hard) isn’t that bad news if they don’t plan to pay it back.

“This appears to have been entirely generated by government support measures totalling £36.5m, which the company does not intend to repay.”

Also, interesting what you said about tangible assets and how you worked it out it’s something which I hadn’t really thought about before. How did you get to the figure of 50p per share? Is it something like (share price 45p) divided by (tangible assets O.93 = 48.37p ?

Cheers and thanks,

Martin

Boonboon

Vertu Motors (LON:VTU) I believe the AGM is tomorrow so might get a trading update. I hold.

23rd Jun '21

Vertu Motors (LON:VTU) decent update today. Albeit tempered by new vehicle delays and high Wholesale prices for used cars.

I like this bit though

"in light of the strong trading performance to date, driven largely by the exceptional used car market environment, the Board now anticipates that the Group's full year adjusted profit before tax will be above current expectations and in the range of GBP28m - GBP32m".

Hi martin,

I have to admit I used the company's own figure for tangible net assets per share, which I took from the FY21 results presentation.

To calculate this myself, I'd take the net assets (total assets - total liabilities) from the balance sheet and then subtract any goodwill and intangible assets. I'd then divide the remaining sum by the share count for Vertu Motors (LON:VTU), which is shown at the bottom of the StockReport.

I've just done this quickly and got a figure of 48.3p per share, so slightly below the company's own measure, but close enough.

In my view, balance sheet asset values are a useful guide, but aren't cast in stone -- they're a snapshot at a single point in time.

simoan

25th Jun '21

I've held Vertu Motors (LON:VTU) on a few occasions over the years and last bought a year ago at half the current share price. I also happen to be in the market for a new car and so visitied a local Audi dealership yesterday, and given what I found, I am seriously consider selling up. I suggest anyone that is thinking of buying into car dealerships do a bit of mystery shopping first.

Yesterday I experienced...

1. A computer screen showing all the incoming cars they were expecting with already ordered new cars not expected until end of the year.

2. Tales of whole model ranges they could not source at all, used or new e.g. Audi Q3.

3. If you're strange enough to want a new car with a sunroof? Not until 2022 at the earliest, sir!!

4. I witnessed used cars parked so far apart on the forecourt that it was obvious they had virtually no stock (unless I missed the government instruction that Audi Q2's should maintain a social distance of 4 metres!)

The salesman also told me last weekend he had two parties virtually fighting over one estate car just like they were buying loo roll at the start of a pandemic!

So all the news is incredibly positive currently with very strong trading in the the first half, as Marshall Motor Holdings (LON:MMH) has also reported this AM. However, the concerns about longer term trading expressed in the recent trading statements by listed dealers appear to be very real. It's a low margin business, so what happens when they don't have any cars to sell?

All the best, Si

JohnEustace

26th Jun '21

I was listening to a US Motley Fool podcast last week that told a similar story. Large dealer lots that would normally have many hundreds of new and used cars on sale with barely a dozen cars left.

The more popular used cars are selling for more than they were going for two years ago.

27th Jun '21

It's interesting to see how this progresses. Used car prices increasing should push up the value of their inventory and improve margins. Although any new stock they get would cost them more. If there are delays in delivery of new cars I wonder if that means people will keep older cars for longer and therefore lead to an increase in high margin services/mots?

At least this is an industry specific issue and not a company specific one.

I have looked at their website and the amount of used cars has been fluctuating between the 7000's and the 8000's (currently 8011) which suggests they're making sales and getting more inventory.

They currently also have 2260 new cars available.

Now 7945 used cars in stock. Which suggests they've sold 66 so far today.

ezlifeme

Compared to additions to stock? I believe the statistic is a net movement?

Right. The amount of cars showing now is 7821. So 190 less than this morning. My conclusion therefore is that they have sold at least 190 cars today as there could also have been some additions.

I also don't know if every used car gets listed on the website or if they try and sell through walk ins to the local dealer first. I imagine that would save on photography/listing costs.

28th Jun '21

Back up to 8051 cars now. So definitely constantly moving both ways.

29th Jun '21

Quick update. I realise this is highly circumstantial but I returned to Audi yesterday for a test drive. As an aside, when I got in I was absolutely shocked at the amount of cheap plastic in a supposedly upmarket German car. Really shocking quality interior compared to our old Audi.

Yesterday, I tried to order a new car. Well, it turns out there are simply no production slots left for the model I wanted, and none for other models either. Of course, not all the available slots will be for cars heading to the UK... The salesman was pretty cheesed off, maybe he'd had a bad weekend, but I know how I'd feel turning up for work every day knowing full well I had virtually no cars to sell.

With regard to second hand cars, I was told they were now bidding on second hand stock from Audi UK and they were paying more than the list price of the car I had test driven for the same car spec and age. By the time they have put their own margin on top and stuck it on the lot, the price will not be far short of that of a new car. Who in their right mind is going to buy a second hand car that is less than 5% cheaper than a brand new one unless they are in some kind of blind panic to own a car? Not me!

I'm off to a Merc dealer tomorrow so will report back. Looks to me like the dealers will have a bumper end to this year but could be a famine start of next.

GrahamScott

Not just me then, we looked at Audis last month and was extremely disappointed with the plastics too. Having had awful experiences with Mercs in the past we went to the BMW showroom. Quality is infinitely better but delivery times were too far away and PCP prices seemed high. In the end purchased a 235 Grand Coupe from a leasing company on a 3 year lease with delivery just 25 days away. Price was 25% less per month than that quoted at our local dealer. Might be worth checking the leasing companies to see what they have available for immediate delivery?

Thanks, Graham. I'm going to sound old fashioned here, but we don't change cars that often and so PCP does not work for a number of reasons. We're only looking for a run about for the other half so A3 Audi or A200 Merc. After yesterday, assuming I can get one, the Merc will win hands down. How much more cheap plastic and poor quality other materials can you get into a cabin that size :)

5th Jul '21

Quick update. I found pretty much the same situation at the Mercedes dealer. Quickly dwindling used car stock, and whilst you can order a new car, there's no guarantee as to when it will be delivered; very possibly not this year. Same situation as at Audi.

The good news is I managed to buy a new A220d AMG Line sitting in the port with a £6,800 discount due to it now being an old spec model. Pretty good deal and the Merc interior is spectacular quality compared to the A3 we drove.

FWLIW I ditched my Vertu Motors (LON:VTU) holding on Friday. Given what I found, there's a bit too much uncertainty on the sales front for H1 next year for my liking. It's clear to me any broker estimates of revenue for H2 and H1 2022 are pure guesswork.

gwilli68

6th Jul '21

Vertu Motors (LON:VTU) presentation on PI World next week will likely be worth a watch - can register here.

8th Jul '21

The car makers are all cutting costs because they have to develop electric cars alongside internal combustion. VW group are particularly bad due to dieselgate but I saw last week that BMW are also planning to cut production costs per vehicle by 25% by 2025 so I'm not sure how long their quality will last.

Cars seem to be going back to the bad old days of just lasting until the end of the warranty period. By the time people notice and resale values take a hit they will be pushing us to go electric.

SIF Folio: Vertu Motors could tick all the boxes

Vertu Motors (LON:VTU)

Value: below net asset value

Unlock the rest of this article with a 14 day trial

About the Author

Roland Head

29 comments

Unlock the metrics for all these stocks and more...

Unlock the metrics for all these stocks and more...