Car supermarket group Motorpoint is a ‘good company’ that is ‘relatively overvalued’, experts have said.
A report by financial specialists Zeus Capital found that the firm has ‘not capitalised’ on unprecedented trading conditions to the same extent as the rest of the industry.
It put the difficulties down to supply constraints, which have shrunk the zero to three-year-old car market in which Motorpoint operates
However, it did say that the company now has an opportunity to grow revenue and profits via opening new sites and strategic initiatives.
Zeus forecasts that Motorpoint will expand its network of stores from 16 to 24 by 2025, with unit sales per site falling 7.5 per cent in 2023.
It predicts gross margins of 7.1 per cent for both 2023 and 2024 before increasing slightly to to 7.3 per cent in 2025.
Operating expenses are expected to increase with the new sites and further investment in e-commerce over the coming years.
Based on the forecasts, Zeus believes that Motorpoint will trade on a price–earnings ratio of 16.8x 2023 and 13.8x 2024 in the next two years.
A spokesman for the financial firm said: ‘In our view, the valuation gap is predominantly driven by traditional franchised dealers being significantly undervalued for their levels of forecast profitability and cash generation.
‘We do not think Motorpoint’s relative valuation is supported by higher earnings quality or sufficiently better EPS growth potential.
‘The traditional franchised retailers have more diverse sources of profits (new cars, used cars, aftersales, ancillary businesses) and more established stock sourcing channels (through part exchanges and relationships with OEMs) that allow them to operate effectively in a supply constrained environment.
‘Therefore, we believe the valuation multiples of Motorpoint and the franchised dealers ought to converge.’
Motorpoint announced earlier this week that it is to create 30 jobs through the opening of its new Edinburgh store.
The site will join the recently opened Portsmouth showroom in Motorpoint’s retail network.
A full rundown of the firm’s accounts can be found here.