Vertu Motors (AIM:VTU): Current year ahead but outlook less certain

Following a strong trading performance in the first six months of the financial year, trading in the period to 31 January 2010 has remained ahead of budget and prior year levels with management now expecting Group performance for the full year to exceed market consensus expectations (consensus pre-tax £4.99m and eps 2.12p).

The new vehicle market continued to be stimulated by the scrappage scheme with private new vehicle registrations in the UK growing 67.9% in the period from September to January. The Group’s new car retail like-for-like volumes rose 18.6% in the corresponding period. Scrappage sales have changed the normal market share patterns amongst the vehicle manufacturers.  Historic large market share players such as Ford and Vauxhall have seen lower retail market share, as manufacturers such as Hyundai have gained, based on sales of predominantly lower priced, small vehicles under the scrappage scheme.

The Group’s manufacturer representation is concentrated in franchises which historically have enjoyed high market shares (I.e Ford and Vauvhall).Vertu achieved high volumes against manufacturer targets in the period and consequently significant volume bonuses were earned and new car margins were above expectations. Fleet new vehicle sales of cars and commercial vehicles are a significant part of the Group’s operations. UK new car registrations in the fleet sector declined 1.2% in the period from September to January. Commercial vehicle sales have remained under pressure as a result of the continued economic uncertainty in the UK with light and heavy commercial vehicle registrations falling 14.4% and 37.9% respectively in the September to January period. The Group saw a 14.0% fall in like-for-like fleet and commercial new vehicle volumes in the same period which is reflective of the significance of commercial vehicle sales within the Group’s fleet volume. The fall in volume was offset by stronger margins than in the first half, which was effected by the oversupply of new commercial vehicles which has now been cleared.

- Snowy conditions hurt January trading

Impacted by the scrappage scheme the Group’s used vehicle like-for-like volumes declined by 9.0% in the period from September to January. January contributed 58.6% of the period’s overall fall in used car volumes since the month’s snow disrupted what is normally a very strong used car month. Demand rebounded significantly in late January and February.

- Acquisitions

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Vertu added 14 sales outlets to its portfolio since 1 March 2009 and is currently engaged in discussions with a number of potential acquisitions.  

- Outlook uncertain but year to Feb 2010 ahead

The outlook for the remainder of 2010 remains uncertain, particularly in the new car sales area. The ending of the scrappage programme, January’s rise in VAT, the introduction of the new car “showroom” tax in April and continued strength in the Euro against Sterling (sounds like a Perfect Storm!) all indicate that new car sales to private customers will decline over the remainder of the year. The fleet, used car and aftersales areas are likely to be more resilient in the coming period. The Group has the strategies and management in place to ensure costs are controlled and dealership performance is maximised in all revenue areas.

Look out for the Preliminary results on Wednesday 12th May 2010 for more detail on the numbers to end Feb 2010 but really it’s all about the outlook rather than the past