Author Topic: VTU.L - Vertu Motors  (Read 10050 times)

kab60

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Re: VTU.L - Vertu Motors
« Reply #10 on: September 10, 2019, 10:42:48 PM »
Thanks, very valuable. I've stayed away from Vertu for a long time but sensed a change of tone (talking about per share value, hurdle rate etc) as well as a very undemanding valuation (ripe for an activist) and nice aftersales growth (higher than Cambria), but what you've described is just terrible from a capital allocation standpoint. Much appreciated.


compounding

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Re: VTU.L - Vertu Motors
« Reply #11 on: September 11, 2019, 01:13:05 AM »
My general sense from reading the reports and following the communication and actions from management is that capital allocation has improved quite significantly since the last equity raise. They have done one or two real estate deals to unlock capital, they have refrained from acquisitions due to valuation reasons and returned capital to shareholders via dividends, and increasingly lately, via buybacks. At current prices they have been heavy buyers, buying around 150k shares per day, which is really quite something since the average volume traded in the stock is around 550k. So they have shifted their communication, making capital allocation the prime topic in reports/presentations, and actually followed it up with good decision making.

The balance sheet is great, so there is really no need to issue equity, even if they want to acquire something (with the possible exception of something really big). Their most recent acquisitions have been paid with cash on hand. The margin expansion thesis in combination with further consolidation of the industry, the cheap price and the current capital allocation makes this interesting for me, and I have had a small position since 2016.

My question would be, despite all of the above, do you still not trust Forrester will allocate well going forward? I agree that the investment thesis is broken if they start issuing equity at stupid prices again. I guess the real question here is if the last few years are more indicative of capital allocation going forward than the previous ten.
@JohanHjortsson

maude

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Re: VTU.L - Vertu Motors
« Reply #12 on: September 11, 2019, 08:04:57 AM »
I guess I'm not sure I trust Robert Forrester completely, but I do think further equity issuances in the next few years is pretty unlikely. That being said, Cambria is trading at a slightly lower P/E multiple than Vertu (based on the companies' guidance to the brokers for the current fiscal year). I have more confidence that Cambria will grow earnings than I do about Vertu, because Cambria has shown tangible progress in this regard recently due to the new luxury dealerships ramping up profitability (and their long-term track record just gives them a lot of credibility in general). Vertu's earnings growth is more predicated on improving the margins of dealerships that are not generating good margins, but this was also the thesis a few years ago and they haven't really shown progress in this regard. However, Vertu's balance sheet is more conservative than Cambria's and Vertu trades at a lower multiple of tangible book value (though I would tend to view the lower P/TBV as a negative because it implies Vertu's ROIC is lower than Cambria's). Having owned and followed both of these companies for a few years now, I can say I feel more comfortable with Cambria, all things considered. That being said, I think Vertu is also undervalued, but less than Cambria.

compounding

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Re: VTU.L - Vertu Motors
« Reply #13 on: September 11, 2019, 10:19:05 PM »
Sounds very reasonable, thanks for elaborating.
@JohanHjortsson

whistlerbumps

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Re: VTU.L - Vertu Motors
« Reply #14 on: September 19, 2019, 10:49:04 AM »
I will say that VTU has become much more aggressive with the buyback in the last couple of years.  RF definitely wants to make acquisitions but he has also changed his tune re repurchases which should be pretty accretive at these levels.

Saj

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Re: VTU.L - Vertu Motors
« Reply #15 on: September 19, 2019, 10:57:20 AM »

kab60

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Re: VTU.L - Vertu Motors
« Reply #16 on: October 08, 2019, 03:54:51 AM »
No idea as for why the buybacks stopped, but Forrester is quiet active on Twitter, and he has been travelling coach to save on opex: https://twitter.com/vertumotors

Did someone confirm he read Outsiders? Not a major point, but considering the value destruction that has gone on historically - and where shares trade - it would hopefully have been an eye-opener (not convinced though: https://twitter.com/vertumotors/status/1179995602458988544 :D)
« Last Edit: October 08, 2019, 03:57:41 AM by kab60 »

whistlerbumps

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Re: VTU.L - Vertu Motors
« Reply #17 on: October 08, 2019, 06:39:37 AM »
I think the buybacks may have stopped because they are in the quiet period before the results announcement.

compounding

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Re: VTU.L - Vertu Motors
« Reply #18 on: October 09, 2019, 01:25:04 AM »
Results out. Not much out of the ordinary as far as I can tell. Best part was probably the cash flow generation which was strong, coupled with the reduced capex led to FCF of 21m (pretty significant compared to the current market cap of 122m).

Happy to see the continued focus on capital allocation in the written communication.
@JohanHjortsson

kab60

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Re: VTU.L - Vertu Motors
« Reply #19 on: October 09, 2019, 03:30:33 AM »
Results look pretty good, and as you said they're harvesting cash (which they telegraphed after some years with major capex). Definately cheap if they don't blow their money on expensive acquisitions, so I suppose nothing has really changed. Their net cash balance sheet should provide them with interesting options, but it's hard to envision something more accretitive than buybacks.

I'm still not convinced (small positon), but Robert does talk the talk now (now walk the walk and get aggressive):

"The group has firepower with which to not only grow the business by partnering with their major OEMs but also to invest in a raft of initiatives on omnichannel retailing, which I'll go through in some detail. We're very, very focused of generating cash, which means controlling costs, controlling capital and I think that comes through, and that then frees up resources to put through our capital allocation process, and the board's very focus on capital allocation. We have a very strong balance sheet. We continue to generate cash flow disposal of surplus properties, and we have been engaging in the share buyback program because clearly, the share prices below where we believe the intrinsic value of the business to be."
« Last Edit: October 09, 2019, 04:12:55 AM by kab60 »