Vertu Motors

SPECULATIVE BUY

14/10/2009

Car dealership consolidator Vertu has boosted profits by 47% in the first half to August, aided by rising used car values and the Government’s new scrappage scheme.

In a buyers’ market of lower property prices and recessionary pressures, Vertu raised a net £29.9m in June to take acquisitive advantage. So far this year it has spent around £15m on buying ten 'sales outlets' in six locations, which contributed £14.1m to the interim top line.

However, with the UK market for new vehicles suffering amid the recession, group revenues reduced by 5.2% to £401.3m in the first half. But lifting the bonnet on the results reveals that Vertu is managing to polish up some historically underperforming businesses and engineer improved performances. Helped by lower costs and higher volumes and values of used cars, margins were jacked up from 11.1% to 12.5%, winching pre-tax profits 47.4% higher to £2.8m.

Post the period end, the Government’s new scrappage scheme helped deliver 1,686 sales, giving a boost to new car sales. In the key month of September, when number plates are changed, Vertu’s new car retail volumes rose 41.3% and like-for-like new retail volumes rose 16.3%, though sales are still down 7.2% on a like-for-like basis.

To accelerate its acquisitive run, the group has £21m net cash to purchase new dealerships and buy out its leaseholds. With chief executive Robert Forrester revealing that current trading is ahead of expectations, analysts across the City have increased their (previously downgraded) earnings forecasts for the full year.

Vertu’s shares, originally recommended by Growth Company Investor at 77.5p in 2007 but reiterated this June at 35p after a winter slide, should outperform indebted peers in the short and medium term but remain in a moribund sector. Speculative.