8:00 am, June 15, 2023
Used car dealer Motorpoint shares are currently ‘overvalued’ and listed franchised dealers offer better profit potential.
That’s the opinion of broker Zeus Capital which has issued a briefing note to investors following the used car dealer group’s shock results yesterday.
Motorpoint revealed a £300,000 loss to the Stock Market blaming limited used car stock, the fall in used electric car prices and rising costs.
It swung from a £21.5m profit the year before into negative territory with a set of results that shook the market.
What’s more, Zeus Capital says it expects more losses to come in the current financial year too.
Shares fell yesterday to 118.15p, the lowest they have been for a year, valuing the business at just £106m. Shares have dropped 44.5 per cent in the past 12 months.
Briefing investors, Zeus Capital’s Mike Allen said: ‘In our view, Motorpoint has a strong brand, good customer loyalty, growing market share in 0-4 year old vehicles, and a well-invested technology platform.
‘That said, we think Motorpoint shares are overvalued based on forecast fundamentals and macroeconomic conditions.
‘Motorpoint is expensive, in relative terms, even when looking three years out. We think the franchised motor retailers offer better cash generation potential, profitability, and value.’
Zeus Capital also predicts further headwinds ahead for Motorpoint. It has reduced its revenue estimates by 13.5 per cent for the current financial year (2024) and by 16 per cent in 2025.
As a result, the broker has switched its estimate for 2024 from a £400k profit to a whopping £3.2m loss.
Allen doesn’t think the used car dealer will tip back into profit now until 2025 and the broker has reduced its estimate for that too.
He added: ‘With no new store rollouts planned, we reduce revenue estimates.
‘We also expect a headwind from interest rate rises through lower financing commissions and higher stocking finance charges – the market is now pricing in a base rate of over 5.5 per cent by the end of 2023.
‘As a result, Zeus adjusted PBT estimates move from a £0.4m profit to £3.2m loss in FY24 and from a £4.8m profit to a £2.4m profit in FY25.’
Motorpoint told investors that it would be pausing new car showroom openings and focussing on cash preservation and improving its profitability.
Allen added: ‘Whilst Motorpoint has a strong brand and growing market share, we will need to see improving profitability or the confidence to open new sites before there is a compelling investment case.’
Motorpoint CEO Mark Carpenter yesterday promised that the firm would ’emerge from the current environment in a strong position’. And it added its 2023 results were marked by ‘record revenues’ up 8.9 per cent to £1.4bn.
