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Cambria Automobiles – “well placed to continue to deliver on its strategy”, so why are the shares down again?

By Steve Moore | Wednesday 7 March 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.

Although already down from more than 80p in May 2016 towards 60p, shares in automobiles dealerships group Cambria (CAMB) are presently further lower on the back of a trading update including “trading in line with market expectations” and concluding “the board believes that the group is well placed to continue to deliver on its strategy of enhancing the group's portfolio”. Hmmm…

… Aftersales “revenue increasing by 0.6% (like-for-like up 6.1%), with profitability up 2.1% year on year… like-for-like up 8.2%”. Not bad. Used vehicle sales; “like-for-like units were in line with the same period in the prior year… continued improvement in gross profit per unit”. Ok. Although “gross profit per retail unit improving to partially offset… new vehicle unit sales were down 16.5% (like-for-like down 14.6%)”! And thus overall performance is “behind the corresponding period in 2016/17, both on a total and like-for-like basis”.

That this is “in line” reflects downgraded forecasts - 7.5p of earnings per share forecast comparing to 9.5p being forecast for this year in May 2016 (and to 9.2p delivered last year). Broker to the company N+1 Singer argues “the group has >45p of property backing and retains financial flexibility to target any future M&A opportunities should they arise. Our 12m estimate of fair value remains at 75p”.

However, I note the company’s statements that “the general uncertainty in the consumer environment remains, as does the pressure that vehicle manufacturers are under as a result of the current Sterling exchange rate” and “the government's clean air policy narrative and the inconsistent messaging around the forward looking position on diesel engines has created a reduction in consumer demand for diesel vehicles which formed 42% of the new car market in 2017 and 47.7% in 2016”.

Such a trading environment sees me retain my prior caution here – and currently continue to avoid.

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