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Vertu Motors (LSE:VTU), a leading UK automotive retailer with a network of 192 sales and aftersales outlets, has provided an update on its trading performance for the five-month period ending July 31, 2024. This update precedes the release of its interim results for the six-month period ending August 31, 2024. The company expects its full-year FY25 adjusted profit before tax to be broadly in line with current market consensus.
Key Highlights
- Profit Expectations: Full-year adjusted profit before tax is anticipated to align with market expectations, although first-half profits will be lower than the prior year as expected. The company projects an improvement in second-half performance due to a stronger used car market and enhanced trade values.
- Aftersales Performance: Vertu Motors reported robust performance in its aftersales operations, achieving growth in both revenue and gross profit. This was driven by strong execution and an increase in technician resources.
- Used Vehicle Performance: The company experienced a 5.0% increase in like-for-like used vehicle volumes, with a rise in gross margin to 7.2%. UK used vehicle values remained stable due to constrained supply.
- New Vehicle Sales: The group’s new retail vehicle sales volumes declined by 5.8% during the Period, which is a notable outperformance compared to the UK market's 12.1% drop. Manufacturers are currently discounting and experiencing soft margins due to oversupply in several franchises.
- Fleet and Commercial Vehicle Sales: The supply of new vehicles in the UK is being redirected to the fleet channel, including Motability, where UK sales grew by 19.3%. The group maintained strong margins on fleet and commercial vehicle sales, avoiding the low-margin short cycle registrations that have seen significant growth.
- Cost Pressures: Inflationary cost pressures remain, particularly in salaries and wages. Vertu Motors continues to focus on cost control and efficiency.
Outlook and Strategic Positioning
Looking ahead, Vertu Motors expects its full-year adjusted profit before tax to be broadly in line with current market consensus. Although the first half of the year will see lower profits compared to the prior year, the second half is anticipated to benefit from a more favorable used car market and improved trade values.
Manufacturers are managing the volume and mix of Internal Combustion Engine (ICE) and Battery Electric Vehicles (BEV) to meet legislative targets. Retail demand for new vehicles, especially BEVs, is expected to remain weak due to high vehicle prices and a lack of government incentives. The group's new vehicle order-take for September is tracking below prior year levels, reflecting a weakening retail market in 2024.
The reduced supply of used vehicles is likely to keep used car prices stable. Lower interest rates should enhance the affordability of used cars and reduce the group’s interest costs. To ensure sufficient stock for September, Vertu Motors has increased its used inventory levels compared to February 2024. However, used vehicle stock levels are still lower than a year ago.
