Motorpoint Group PLC (LSE:MOTR, OTC:MTPTF) raised full-year guidance this morning and was rewarded with a share price fall; then again, there has long been something awry with the valuations of car dealers.
Shares in Motorpoint were off 2.2% in afternoon trading at 349p, despite the company posting revenues and profits in the six months to the end of September that set new records.
To be sure, share price reaction is dependent on outcome versus expectations and the shares have been on a good run since mid-June on the back of rising expectations but management must wonder why the company, which is expected to make more than GBP26mln in underlying earnings (EBITDA) this year, is only worth GBP322mln when the likes of Constellation Automotive Group, which owns Cinch and webuyanycar.com, had private equity groups queuing up to invest more than GBP1bn in capital earlier this year.
Not that it seems relevant but Cinch posted a loss after tax of GBP368.5mln in 2019/2020.
Meanwhile, Cinch’s British rival, Cazoo attracted the attention of AJAX, a US special purpose acquisition company (SPAC), in a deal that valued the combined company at more than US$7bn.
Cazoo made a loss of GBP19mln in its first year of business, according to accounts filed at Companies House and a half-year loss of GBP102mln in the first half of 2021.
All of which underlines another stock market truism to accompany the earlier one about performance versus expectations; in the end, the current valuation is not based on current profitability but on future expectations and for whatever reason Constellation and Cinch, with their online models, are deemed to have the greater potential.
Never mind that 60% of Motorpoint’s sales are now online, with online retail sales up 53% in the first half of the current fiscal year compared to a year early.
Motorpoint said website traffic improved by 24% compared to the same period a year ago, with improvements across a full range of online marketing metrics, with unsubscribe rates dropping to just 0.2%.
Management is looking to rapidly upscale its e-commerce capability (translation: beef up the online infrastructure so it can sell more cars online) and got in a consultant (which probably explains all the buzzwords) to complete a third-party audit of its “tech stack” and as a result, a future road map (always handy in the car business) has been developed.
“A significant number of new technology roles have been recruited, with the focus on engineers and enabling our migration to [the] cloud. In addition, a new role of chief digital officer will commence in H2. We have made significant improvements to our website, email communications and targeted digital marketing activity. Website traffic improved by 24% compared to the same period a year ago, and improvements have been made in all email metrics, with unsubscribe rates dropping to just 0.2%. We have invested in data science tools and talent and this now supports buying and pricing decisions and targeted customer communications,” the company says.
So, on the technology front, it seems to be doing all the right things. The suspicion remains, however, that it won’t get a sexy stock market valuation unless it gets enough investment to go for a “Monte Carlo or bust” strategy.