A brief analysis on Cambria Automobiles Plc

Cambria Automobiles Plc.

www.cambriaautomobilesplc.com

Ticker:                          CAMB:L

ISIN:                                         GB00B4R32X65

FTSE sector                 General Retailers

FTSE sub-sector          Specialty Retailers

Market:                       AIM

Share Price:                 47.00 (GBp)

Market Cap:                47 (£M)

Business Description

Cambria Automobiles Plc operates as a retailer of new and used cars, commercial vehicles and motorbikes. It offers its products under Doves Volvo, Grange Jaguar Croydon, Dees Croydon, Dees Wimbledon, Invicta Motors, Motor Park, and Pure Triumph brand names. The company also supplies parts on behalf of the brands which the company represents and as a supplier to other car dealers and independent traders and repairers. It also provides accident repair facilities for its customers either through its own accident repair centre in Kent or by sub-contracting to other accident repair centres. Cambria Automobiles was founded by Mark Lavery on March 23, 2006 and is headquartered in Swindon, in the United Kingdom.

Strategy

Cambria has established a strategy to grow through acquisitions and via the turnaround of underperforming businesses. The board seems to have managed to follow this strategy so far having only £0.3m of goodwill on balance sheet.

Mark Lavery, the CEO of Cambria stated that several acquisition opportunities are currently under review and the strong financial position of the company will allow for actions to be taken in a timely manner.

The company’s target is to achieve group revenues of more than £1bn. However the management has not set a deadline or forecast when this target is expected to be achieved.

The company also has a sustained focus on Associate (staff) training and a premium Guest (customer) experience. That is why the company introduced the Cambria Academy.

2012 Results (Fiscal year ending on March 2013)

Cambria has recently announced its full-year  results for 2013. The company reported 12% growth in revenues to £395M and 32% growth in the underlying EBT.

Specifically, “New Vehicles” sales rose 19.5% and “Used Vehicles” sales rose 7% representing 40.4% and 47.7% of total revenues respectively.  

Earnings per share (EPS) rose 49% from 2.34p to 3.49p. The return on Shareholders’ funds in 2013 was 16.6% compare with 13.5% a year earlier.

The management is positive for next year’s outlook and has mentioned that the first two months (September and October 2013) were better than management’s projections.

Balance Sheet

The balance sheet remains in good shape with an increase (28%) in cash and cash equivalents reserves which were £14.8M in 31^st Aug 2013. However this increase was because of a new loan received (£1.9M) and increase in trade payables (£13M).

Cash Flows

Cash from operating activities was £8.4M compared to £3M a year ago which is mainly (as stated before) due to the increase of payables. Cash outflows from investing activities increased 307% while cash outflows from financing activities were £0.2M compared to an outflow of £2M last year.

Net Operating Cycle

Cambria is doing really well in terms of operational efficiency and managerial competency. It has a net operating cycle of -4.77 days. In this respect Cambria is beating almost all of its competitors who have a cash conversation cycle (CCC) of from 5 to 77.7 days. This results from low credit sales (the lowest among competitors), the days of inventory in hand is also one of the lowest figures (64.9 days). The aforementioned show great inventory management.

Competition and Market

Cambria operates in a very competitive sector. The company is competing not only with retailers offering the same brands but also with retailers offering other brands. The main competitors of Cambria are Inchcape (INCH.L), Lookers (LOOK.L), Pendragon (PDG.L), Caffyns (CFYN.L) and H.R. Owen (HRO.L).

The brands Cambria has in its portfolio have a UK market share of 47% approximately. Thus Cambria has a variety of Brands to offer to its clients.

Market Growth: The Society of Motor Manufacturers and Traders (SMMT) expect new car registration to rise 1.7% next year. On the contrary Cambria’s management expect its new vehicles sales to rise much faster. 

Valuation based on P/E

Cambria’s forward P/E is the lowest compared with the competitors included in this analysis. Forward P/E is 13.8 indicating that the company is “cheap” compared to the competitors (Inchcape, Lookers, Pendragon and H.R Owen). In addition, as can be seen from Table 1, current P/E (ttm) is also one of the lowest P/Es. According to Reuters the current P/E for the industry is17.95; based on that figure the relative “fair” price of the stock is 62.6p. Thus the stock could offer a capital return of 33%.

Stock Performance

The price of the shares for the period 2010 (when the stock was listed) to 2013 is illustrated on the graph below. The stock price was under pressure from the time of the float until September 2012. Since then there is a positive trend in the stock price, offering a return of 261% (from 13p to 47p). However, so far, the stock price has never been above that shown on its first day of trading.

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