8:16 am, October 7, 2022
Analysts have downgraded their forecasts for Motorpoint for the next three years, branding the business as ‘expensive’.
Earnings-per-share forecasts have been reduced by 50 per cent, 56 per cent and 44 per cent for FY23, FY24 and FY25 respectively, Zeus Capital said in a note published this morning (Oct 7).
The basis for the downgrades was due to Motorpoint’s ‘lower sales volumes, due to demand headwinds and continuing supply shortages, plus ongoing costs to improve the group’s digital offering’, said the firm.
Zeus Capital’s Mike Allen wrote in the breifing that traditional franchised dealers with ‘more diverse sources of profits’ and ‘more established stock sourcing channels’ are currently undervalued for cash generation and forecast profitability, and are therefore better value.
In contrast, motor retail businesses such as Motorpoint are ‘expensive’, said the broker.
Zeus pointed to it upgrading listed dealer group Vertu’s forecast for FY23 by 13 per cent last week. Vertu this week said its results for the full year would be ‘better than expected’.
The hard-hitting note comes a day after Motorpoint reported profit before tax had tumbled from £13.5m to £3m in the first half of this year, compared to the same period last year.
In the trading update, the used car supermarket group said the fall was as a result of increased ‘strategic investment’.
Zeus Capital added: ‘Based on the trading update, we have reduced sales volumes throughout the forecast period, driving revenue downgrades of seven per cent in FY23, 9.3 per cent in FY24 and 10.7 per cent in FY25.
‘We have increased other operating expenses to reflect IT spend, reducing PBT by 50 per cent in FY23, 59 per cent in FY24 and 47 per cent in FY25.’
It went on to say: ‘Given management’s objective to remain cash generative, we still expect increasing net cash over the forecast period, albeit we will review this assumption in more detail at H1 results in November.’
