11:03 am, March 17, 2023
Lithia Motors’ acquisition of Jardine Motors ‘highlights how undervalued’ UK franchised dealer groups are.
That’s the view of Zeus Capital in its latest report published today (Mar 17).
In it, the analyst said the Lithia deal puts a spotlight on the value of the wider UK franchised dealer groups ‘at current levels’.
The report added the acquisition makes listed dealer groups ‘look materially undervalued’.
Lithia Motors hits the headlines this week when it swooped on Jardine.
The deal, thought to be worth between £300m-£400m, includes Jardine’s 50 dealerships and circa 2,700 employees, and is expected to add annualised revenue to Lithia of over $2.1bn in 2023.
‘This [deal] gives Lithia a major foothold in the UK market and the group has ambitions to expand further,’ said Zeus.
‘Based on the historic financial information of the target, we think the acquisition highlights how undervalued the UK listed franchised dealer groups are at current levels.’
In announcing the acquisition, Lithia’s group CEO said the deal was ‘more affordable than what [you] typically find in the United States’.
Zeus remarked this was due to weak sterling relative to the US dollar and ‘depressed valuation multiples in the UK’.
The firm also noted Jardine’s FY21 profit before tax figure of £24.5m was considerably lower than the £84.4m for Pendragon, £80.7m for Vertu, and £90.7m for Lookers.
‘Therefore,’ the report said, ‘for the relative level of historic profitability, the reported consideration of at least £300m for Jardine makes the UK listed dealer group’s current market capitalisations (Pendragon: £241m , Vertu: £211m , Lookers: £316m) look materially undervalued.
‘A fairer comparison would be against FY22 performance for Jardine, or forecasts for future years, but this information is unavailable.
‘Nonetheless, we think it is unlikely that Jardine has materially improved its profitability relative to the listed dealers since FY21, as these dealer groups have continued to trade well.
‘In our view, as we said in January, this acquisition makes the UK listed franchised dealers appear good value at current levels.’
Zeus concluded that due to sterling remaining weak compared to the US dollar, it wouldn’t be surprised to see ‘further international and sector consolidation’.
