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Marshall Motor Holdings – emphasises 2017 “ahead of our previously upgraded expectations”, but what about the outlook?

By Steve Moore | Thursday 11 January 2018

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

Last week I was cautious on Cambria Automobiles (CAMB) noting macro concerns, today there’s a pre-close statement from fellow AIM-listed Marshall Motor Holdings (MMH)…

This includes “financial performance of the group in FY17 is expected to be ahead of our previously upgraded expectations” - noting “a strong brand mix, attractive geographic territories and excellent brand partner relationships”. Researcher Edison is now looking for earnings per share of more than 29p for the year, up from 26.2p in 2016. Er, what about those macro concerns then?

Well, the statement also includes “in H2, the UK new vehicle market declined further… the group also experienced some margin pressure on sales of new vehicles to retail customers” and “the board notes the latest SMMT UK new car market forecasts for a decline of 5.4% in 2018, driven by political and economic uncertainty. The board therefore remains cautious about the UK car market in 2018”.

Worse still, “during the first quarter of 2017, the market benefitted from the impact of one-off changes to vehicle excise duties which led to some consumers accelerating purchase decisions to avoid higher excise duties and this will not be repeated in the first quarter of 2018”. Indeed, despite the statement emphasising “ahead of our previously upgraded expectations”, Edison slightly reduces its 2018 earnings forecast “to reflect slight additional margin pressures” - now looking for a reduced sub 24p of earnings per share.

With net debt having “been effectively eliminated”, Edison considers the current circa 160p share price represents a clear discount to fair value – noting the stock “is still trading on an FY18 P/E of just 6.7x”. However, despite the company arguing it is well placed to continue to outperform the market, the noted economic and market picture sees me remain concerned about earnings - and to currently avoid.

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