Motorpoint cautious on outlook after H2 slowdown
Car retailer Motorpoint said on Friday that it expects profit and revenue for the year to the end of March 2019 to have risen from the previous year, but struck a cautious note about the outlook as it noted a slowdown in the second half of the year.
The company said it expects to report revenue growth of more than 6% on the year, while underlying pre-tax profit is expected to have risen around 10%.
However, it also noted that the second half of the financial year saw more modest growth and that gross margins per unit softened slightly from last year's performance amid strong vehicle supply availability in the market.
The group said its flexible sourcing model means it's well-placed to grow market share in the UK nearly new used car market. However, it remains cautious on the outlook for the financial year ahead given the volatile political environment and consumer uncertainty.
It also noted there will be a £2m non-cash profit headwind in FY20 compared to FY19 from historic deferred extended guarantee income.
Chief executive officer Mark Carpenter said: "The group experienced a slower second half but I am pleased that we have achieved double-digit profit growth for the full year and executed strong cost disciplines. Our resilient model is demonstrated through a gross profit to overheads ratio of 144% and a robust closing balance sheet which is again absent of any structural debt.
"The agility of the group's business model enables management to react swiftly to the evolving political and economic situation and the board believes that the group is well placed to continue building on its compelling customer proposition."
At 1030 BST, the shares were down 7% at 176.80p.
Liberum said that in the scheme of things, this is "a very resilient performance".
"We maintain our view that Motorpoint has an excellent business model, with strong margins, a high return on capital and excellent free cash flow, combined with a disciplined roll-out model," the broker said, as it cut its price target on the buy-rated stock to 227p from 285p. It rates Motorpoint at 'buy'.
Meanwhile, Numis also retained its positive stance on the stock, saying that despite the challenging short-term outlook, it values Motorpoint's "premium medium-term growth and superior returns metrics".
"After a year of headwinds in FY20, we expect a return to solid growth thereafter," it said.
Russ Mould, investment director at AJ Bell, said: "The UK car market is awash with stock, giving punters the chance to pick up a bargain and giving retailers like Motorpoint a massive headache. Greater inventory levels will inevitably means slashing prices and thus profit margins will be hit for car sellers.
"The trick for Motorpoint is to keep turning over stock even if it is being sold at a lower price. However, several analysts suggest footfall has been weaker in recent months, so too converting enquiries to actual sales. Therefore the near-term outlook isn’t great for Motorpoint’s earnings.
"While unpleasant, Motorpoint’s management will have been through plenty of good and bad times and should know how to keep the motor running."