8:00 am, October 6, 2022
Used car supermarket group Motorpoint has called out ‘less ambitious’ competitors for lacking the financial firepower to grow.
In an update on its first half year results to the Stock Market this morning, the dealer group said the reason for its falling profits was it was investing where others weren’t.
Profit before tax for the first half of the year tumbled to £3m against £13.5m for the same period last year.
However, the company said this was a result of increased ‘strategic investment’ in the period of £4m, interest costs of £1m.
There were warnings, too, of falling used car sales in the face of economic headwinds battering consumers’ pockets.
Motorpoint said: ‘The board strongly believes there is a significant opportunity for Motorpoint to become a highly profitable market leader, and that certain targeted strategic investments are important particularly as some of the group’s competitors are less ambitious or lack financial capacity.
‘The results of the strategic investments made to date underpin this belief and the current strategy.
‘As a result of the investments during H1 FY23, coupled with the costs of maintaining market leading finance rates at 8.9 per cent, profit before taxation for the period is c.£3m.’
This was despite revenue rocketing for the group during the same period – up 30 per cent on last year to £785m. The used car supermarket is targeting annual revenue of £2bn.
It opened its 18th car supermarket in Edinburgh at the end of September and will open its 19th in Coventry at the end of October.
However, the group warns of worsening conditions in the used car market due to economic pressures being felt by consumers.
Motorpoint said: ‘In September volumes were down nine per cent caused in part by adverse economic news flow and political uncertainty which continue to undermine already fragile consumer confidence.’
This followed sales growth in June after they dropped back in April and May.
‘Macroeconomic conditions continue to worsen, which is causing increasing consumer uncertainty,’ said the update.
‘It is therefore likely that this will reduce used car sales volumes in the UK for the foreseeable future.
‘Although the company does not provide specific profit guidance, it believes these macro factors will continue to challenge financial performance in FY23, the extent of which is difficult to predict.’
Analysts Liberum have slashed their profit forecast for the car supermarket group in half.
In a briefing, Sanjay Vidyarthi said: ‘Motorpoint has delivered strong H1 sales growth and market share gains, but at a materially reduced level of profitability.
‘After a strong summer, trading conditions worsened materially in September. We reduce our FY23E PBT by 50 per cent to £7m.’
Motorpoint said it will now ‘carefully manage its cost base’ during this time.
The firm added: ‘The impact of rising inflation, interest rates, consumer uncertainty and worldwide vehicle supply chain challenges are significantly affecting the used car market.
‘Whilst it is prudent to remain cautious given these short term headwinds, the group will continue to invest now for the longer term in a weakening competitor landscape, whilst also delivering appropriate levels of profitability and cash generation.’
