Vertu Motors accelerated after raising full year guidance in the wake of a strong set of interim results.

For the six months (H1) ended August 31st, revenue increased by 14.8% to £628.1m (2011 H1: £547.0m). Acquisitions in the first half of the financial year accounted for £3.8m of revenue, while companies acquired last year chipped in with £41.4m of revenue. Underlying revenues rose 7.6% reflecting higher vehicle sales levels in the period.

Pre-tax profit was up 26.8% to £5.2m (2011 H1: £4.1m). Underlying profit before tax rose 16.3% to £5.0m from £4.3m the year before.

Gross margins declined from 11.6% to 11.4% with consistent vehicle margins at 7.2% and a decline in after-sales margins. This fall was driven mainly by a change in the product mix due to a petrol forecourt business acquired last year and pricing initiatives in vehicle servicing.

The automotive retailer also announced that its growth strategy is on track with the purchase of 10 further sales outlets since March 1st, 2012.

Commenting on the results, Robert Forrester, Chief Executive, said: "Market conditions have improved and this is reflected in higher sales volumes in both new and used cars. The group's after-sales strategies are now consistently delivering growth of revenues and profits in the service area. In addition, businesses acquired in recent years are delivering on their growth potential and producing improving returns."

New retail sales volumes (excluding sales under the Motability scheme) rose on a like-for-like basis by 4.0% in September 2012 against an increase in UK private registrations of 14.2%. Used retail sales volumes also rose by 5.5% in the month on a like-for-like basis.

The board believes that given this robust performance and current market trends, the full year results are likely to be above current market expectations.

The interim dividend has been whacked up by 25% to 0.25p, although the company stated that part of this increase was due to a desire to rebalance interim and final dividend payments, and should not be taken as a guide to the likely increase in the full-year dividend.

Consensus estimates, for the full year ending February 28th 2013, are for pre-tax profits of £7.35m on revenues of approximately £1.15bn.

Broker comment
Panmure Gordon is a house broker to Vertu and its analysts commented: "The consistency of delivery across all parts of the business both from an underlying and integration perspective remains impressive, cash generation remains strong and the progressive dividend policy firmly intact. Vertu should also benefit from a robust used car market in the short term, while the problems in the Eurozone will continue to provide good profit opportunities for the group providing it maintains its pricing discipline, which we believe it will given its track record. Overall, we view these as a positive set of results, and despite the strong share price of late, believe these should be taken well this morning."

It reiterated its "Buy" stance, increasing the price target for Vertu from 50p to 55p.

CM

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