Risk-tolerant investors seeking a recovery stock with an exciting market share opportunity ahead of it should hop behind the wheel of Motorpoint (MOTR).
Admittedly the used car dealer has just had its toughest year in a quarter of a century, but with market conditions improving the business has returned to profitability and has a brighter road ahead of it.
UK interest rates look to have peaked, while key competitors, notably collapsed online car dealer Cazoo, have exited the marketplace.
Shares believes investors can buy ahead of the swing back into the black forecast for the new financial year, safe in the knowledge Motorpoint has a balance sheet strong enough to absorb unforeseen shocks.
The Derby-headquartered firm sells nearly-new vehicles and delivers industry-leading net promoter scores, since its consumers benefit from prices often 10% to 20% cheaper than comparable cars sold by peers.
Steered by Mark Carpenter, Motorpoint skidded to an £8.2 million pre-tax loss on sales down roughly 25% to £1.09 billion in the year to 31 March 2024, ‘the most difficult in our history’ according to the chief executive. Performance was impacted by constrained used car supply, price deflation and depressed consumer demand in a higher interest rate environment.
Encouragingly, however, the ‘strong and positive trading momentum’ seen in last year’s final quarter, where Motorpoint returned to profitability as customer sentiment and margins improved, has flowed into the new financial year. April and May were both profitable with the company enjoying double-digit retail volume growth amid stable nearly-new car prices.
Motorpoint, which has right-sized its cost base and is benefiting from technology investments made over recent years, finished the last financial year with net cash of £9.2 million driven by strong free cash flow of £3.9 million, supporting an ongoing £5 million share buyback.
Although the tough market backdrop has restricted progress towards some bold targets set in 2021, Carpenter believes the size of Motorpoint’s opportunity has in fact grown and analysts now see the focus shifting towards market share growth and physical site expansion.
For the year to March 2025, Shore Capital forecasts adjusted pre-tax profit of £3 million on £1.14 billion of sales ahead of £8 million of taxable profits on £1.2 billion-plus revenue in full year 2026.
Although the shares trade on a forward PE (price to earnings) ratio north of 50 times based on this year’s 2.5p earnings forecast, that rating falls to more forgiving multiples of 19.9 and 13 times for 2026 and 2027 based on Shore’s conservatively-pitched earnings estimates of 7p and 10.7p respectively.
Numis sees ‘further upside when visibility of supply begins to improve’ for one of the few remaining London-listed automotive retailers.
These articles are provided by Shares magazine which is published by AJ Bell Media, a part of AJ Bell. Shares is not written by AJ Bell.
Shares is provided for your general information and use and is not a personal recommendation to invest. It is not intended to be relied upon by you in making or not making any investment decisions. The investments referred to in these articles will not be suitable for all investors. If in doubt please seek appropriate independent financial advice.
Investors acting on the information in these articles do so at their own risk and AJ Bell Media and its staff do not accept liability for losses suffered by investors as a result of their investment decisions.
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