10:56 am, June 17, 2024
Used car supermarket Motorpoint’s troublesome times could be behind it as experts believe its losses could soon be a thing of the past.
The listed used car business last week billed its 2024 financial year as its ‘most difficult ever’ as it posted annual pre-tax losses of £10.4m.
The company said its underlying pre-tax loss was £8.2m as its annual revenue fell some 25% to just over £1bn in 2024.
However, there were glimmers of positivity in the results as the firm – which has 20 showrooms across the country – said its final quarter had been profitable.
Brokers, including Zeus, Shore Capital and Deutsche Numis believe the future is now looking rosier for Motorpoint and praised a number of tough management decisions taken by the brand.
In a note to investors, Deutsche Numis said it thought the 2024 results were a ‘solid turn-out’ and ‘reflective of the decisive action take to rightsize the cost base’. The broker also praised the firm’s drive to improve ‘operational efficiency’.
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Motorpoint has been particularly badly hit by the reduction in used car supply which came as a result of a smaller number of new cars being sold during the pandemic.
However, Deutsche Numis expects Motorpoint to sell more used cars this year, and the firm to grow its market share and expand with more sites. It said Motorpoint could make £4.5m profit before tax this financial year.
Zeus believes profit will be a little lower, at £4m, but thinks performance will improve the year after when it could more than double its profit before tax to £9m.
Zeus said this comes off the back of the management’s improved confidence in the business and the firm’s plans to resume new store expansions.
Zeus added: ‘The positive trading momentum from Q4 FY24 has so far continued in FY25, with April and May both profitable months.
‘We factor in a new store opening in FY25 and FY26, which is more than offset by lower revenue per retail unit as the group focuses on more affordable cars, albeit at a higher assumed gross margin.’
The broker thinks Motorpoint could even increase its underlying profit before tax to £12.6m by 2027.
Shore Capital ‘warmly welcomed’ the firm’s ‘renewed commitment to growth’ in a briefing to its followers. It expects Motorpoint to make £3m profit this year.
It thinks the used car dealer’s omnichannel model, and a likely fall in interest rates, will be ‘increasingly positive’ for Motorpoint.
It noted the firm’s ‘strong momentum’ in the fourth quarter of its 2024 financial year and said it was ‘very encouraged’ by the recent performance, despite last year being labelled its ‘toughest on record’.
Shore Capital said Motorpoint had managed to reduce operating costs from £69m to £63m and that the dealer had already ‘undertaken much of the heavy lifting’ needed to improve the business over the past 18 months.
Headcount at Motorpoint has fallen 25% since May 2022, explained Shore Capital, and noted that this was a ‘difficult but necessary’ step.
‘We see the commentary around quarter four trading and the continuation of such momentum in FY25 in an improved market environment as highly encouraging,’ added the broker.
‘We note the potent combination of double-digit volume growth, strong metal margins and stable pricing coming together to deliver profitability over what is essentially the next six-month period.’
Motorpoint’s chief executive, Mark Carpenter, told investors when it announced its results: ‘The past financial year was the most difficult in our history, with multiple negative headwinds in the macro environment such as rising borrowing costs and subdued customer demand, coupled with industry-specific issues such as lower inventory and deflation.
‘The resilience of our cash generation evidences the strength of our business model and we now look forward to continuing our journey of profitable growth as the improving trends of Q4 have continued into Q1.
‘Following the rightsizing exercise of FY24, we now have a lean, technology-enabled business. I am very confident in our ability to scale profitability and cash generation as the market improves, which will allow us to invest further in growth.’
