8:54 am, January 30, 2023
Listed used car supermarket Motorpoint is ‘overvalued’ when compared to quoted franchised dealer groups, believes a stockbroker, as it issues a series of chilling warnings.
Motor industry analyst Mike Allen from Zeus Capital has told investors the used car supermarket faces a series of worrying challenges which will severely impact its profitability.
The pressures are so stark the investment bank has cut its profit forecasts for Motorpoint from £6.7m to just break even in 2023.
Zeus Capital has also reduced its profit before tax forecasts for 2024 for the car supermarket down from £7.1m to £400k.
‘We see strong competition and headwinds to profitability and cash generation for the foreseeable future, plus supply challenges in nearly-new vehicles,’ said Allen.
‘We think Motorpoint continues to be relatively overvalued against quoted UK franchised motor retailers.’
Motorpoint updated investors via a Stock Market announcement on Friday when it reported falling used electric car prices and higher financing costs were having an impact on the business.
Motorpoint said these factors will ‘continue to impact sales and profitability for the foreseeable future’. It said revenue for the nine months ended December 31, 2022, was £1.06bn.
Zeus Capital’s briefing – issued today (Jan 30) – found that on January 27 some 10 per cent of Motorpoint’s used car inventory was electric, including 90 Teslas.
Car Dealer reported on Friday that Cap HPI has seen used EV prices fall 6.6 per cent in January alone. Some electric models have lost more than £5,000 this month while Tesla Model 3 and Y values have dropped a worrying £13-14k in just four months.
Allen said these weaker EV values will cause a fall in gross profit per unit at Motorpoint and added its desire to offer competitive finance rates will also impact earnings.
He said: ‘The group’s commitment to market-leading APRs, in a rising interest rate environment, is likely also a major driver in eroding margins.’
Zeus Capital’s profit forecasts for the used car dealer have been reduced by 100 per cent for 2023, 94 per cent for 2024 and by 59 per cent to £4.8m in 2025.
The investment bank is also concerned about a lack of nearly new cars – prime used stock for the supermarket group – following depressed new car sales volumes in the last few years.
Allen added: ‘If Motorpoint can achieve its ambition of £2bn revenue in the medium-term via site expansion and market share gains there is clear long-term profit growth potential.
‘However, we think the short-term downside risk factors are piling up. The 2.1m “lost” registrations in new vehicles between 2020-22 has shrunk the 0-4 old used car population and Motorpoint’s available supply of stock.
‘It will take years for improvements in new car supply to feed through to Motorpoint’s product segment.
‘Further, we believe it is possible that the agency sales model, where dealers act as sales agents for OEMs, will be employed by more manufacturers for nearly-new vehicles.
‘This could mean that OEMs will control more of the supply, which is a long-term risk to Motorpoint’s independent model.’
Allen added that he does not think the market has priced in the deteriorating earnings prospects to its share price yet. Shares were trading at 145p on Friday.
Motorpoint CEO Mark Carpenter remained bullish in his update, telling investors: ‘Motorpoint will emerge from the current depressed consumer market a more efficient business, having made progress on multiple key strategic initiatives.
‘In a period when some of the group’s competitors are retreating or lacking financial capability and when current macro headwinds are forecast to continue, the board believes that there is significant opportunity to continue making targeted strategic investment to grow market share and become a highly profitable market leader.’
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