Vertu Motors is parked in a near-deserted stock market forecourt. London has gone from having a bevy of listed motor retailers — remember Reg Vardy, Marshall Motor, Lookers, Cambria, CD Bramall? — to just a handful. And given that Pendragon has been subject to a bidding war and looks set to be consumed by a US group imminently, Vertu, the UK’s third-largest motor business, stands out.
The firm has benefited from its rivals’ various takeovers and from higher vehicle prices across the industry, with its shares up 23 per cent in the past six months. And its acquisition of Helston Garages late last year allowed Vertu to spread into the southwest and boosted profits. The shares were trading at 79p at Friday’s close, up from April’s 60p — the price, coincidentally, at which Vertu listed when it first joined Aim in 2006.
The City has been busy extrapolating valuations from the Pendragon deal. That company’s 35.4p-per-share offer price, at 11 times earnings, would value Vertu at £1.20 a share — well above today’s price.
Meanwhile, Vertu is trading on a one-year price-earnings ratio of just above 7, against Pendragon’s 10.7.
Vertu’s ratio is “just too cheap for a business with an excellent growth record and a strong balance sheet, in prime position to consolidate the market,” said Sanjay Vidyarthi, a broker at Liberum Capital.
Its results for the half year to August 31 show that Vertu is profiting from its growing scale. Revenues grew a fifth to £2.4 billion, while pre-tax profits jumped 12 per cent. New cars, second-hand cars, fleet orders and after-sales all contributed to the surge, and the interim dividend was increased by 21 per cent.
Vertu, which has 190 forecourts in the UK, is well managed, as demonstrated by how it has developed the best of its acquisitions. When it bought 12 BMW and Mini outlets from rival Inchcape in December 2020, the dealerships were bringing in £305 million of sales but making a £6 million loss. After three years under Vertu— admittedly helped by strong Covid-era demand for motors — these sites are providing a £6 million profit.
The motor industry is facing flux in the longer term, and electric vehicles could cause some problems for Vertu; fewer than 5 per cent of its used-car sales in the last half-year were electric. And prices for used EVs are particularly volatile — down 44 per cent in the past year.
Still, over the next 12 months at least, Vertu looks a good-value addition to a share portfolio; either a takeover or decent organic growth should be hiding under this bonnet. Buy.
