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Ridgeway deal to turbocharge profits at Marshall Motor

Marshall Motor Holdings (MMH) is a Cambridge headquartered group of car dealers. The company joined AIM in April 2015. The firm is family controlled but employee managed. The Marshall family own 65% of the shares and another three investment corporations together account for nearly 20%. According to the group website, Marshall sells 24 car brands, via its 103 franchise dealerships. Marshalls sells a broad range of vehicles, from SEAT and Kia through to Jaguar, Mercedes and Maserati. In November 2015, MMH acquired Kent/Surrey/London dealer SG Smith for “approximately £24.4m”.

Ridgeway looks the perfect bolt-on The company was transformed in May 2016 with the acquisition of Ridgeway. This added 30 francished dealerships at a price of £107m. Ridgeway looks the perfect bolt-on for Marshall Motor. The new dealerships acquired are in “contiguous locations with attractive demographics and no overlap to MMH’s existing locations”. The acquisition also added five used car centres and a small collection of automotive service businesses. The Ridgeway acquisition is expected to be materially earnings enhancing to the 2016 and 2017 financial years (MMH has a calendar year end). The company reported earnings per share of 19.7p for the full year 2015. At first glance, the shares appear


very cheap. However, the rating is similar at midcap peer Lookers and £2.8bn Inchcape offers a comparable yield. Earnings in the sector are regarded as less secure. New cars are a discretionary item and sales are heavily influenced by consumer confidence. While new sales have been increasing since 2011, the recession saw new sales fall by around 20% in the UK and did not recover fully until 2014. This recovery is reflected in MMH’s profit figures, where the net profit figure increased more than threefold from 2012 to 2015.

rating is similar at midcap peer Interest rates complicate things further. Low rates facilitate lease/ financed transactions and will have provided a significant fillip to sales in recent years. This leaves the concern as to whether MMH went into debt to buy Ridgeway at a peak in the cycle. It is hard to imagine that management would not have been live to this possibility at the time. However, acquirors don’t decide when vendors choose to sell and Ridgeway does look the perfect addition to the group.

net assets of 178p per share 2015 saw a 13.5% increase in turnover produce a 21.4% uplift to adjusted profit. The end of year net cash position was £24m. New car sales were reported 9.9% higher, with used car sales showing a similar rise. MMH reported big rises in sales and profit numbers at the half-year stage, as SG Smith made a full six month contribution. Bulls will take heart from net assets of 178p per share but the bears will point to the emerging threat from online deal brokers.

Marshall Motor Holdings (LON:MMH) FOR Low valuation Asset backing AGAINST Possible market peak Online threat Market cap Bid:offer P/E (forecast) Yield (forecast) 52week low:high

£110m 134p:142p 5.9 3.8% 130p:217p

November 2016 AIM Prospector  
November 2016 AIM Prospector  

Featuring *NINE* AIM companies: Anpario, Colefax, James Halstead, Quartix, Marshall Motor Holdings, Next Fifteen Communications, Orchard Fun...