Cambria’s got gas in the tank

Well-funded franchised motor dealer looks significantly oversold

A sell-off at franchised motor retailer Cambria Automobiles (CAMB:AIM) looks overdone. A prospective price to earnings ratio (PE) of 6.7 discounts sector risks yet ignores the small cap’s cash generation and exciting future prospects.

Motor retailers have de-rated since before the Brexit vote. Investors have priced in an uncertain consumer outlook and called the top of the new car market.

Cambria’s full year results (22 Nov) showed 38% growth in pre-tax profit to £10.6m as sales topped £600m for the first time, as well as a reassuring £400,000 net cash position.

Caution over softening new car margins prompted analysts to downgrade profit estimates, yet Cambria has a rock-solid balance sheet – 41p per share property asset backing according to N+1 Singer – and is steered by experienced management that has grown the business in conditions fair and foul alike.

There should be more to come from recent acquisitions that have beefed up Cambria’s premium and high luxury business, while tougher market conditions are already increasing acquisition opportunities in a fragmented market.

New forecasts for the year to August 2017 from N+1 Singer, which suggests fair value of 73p, point to slightly lower adjusted pre-tax profit of £10.4m (2015: £10.6m) for earnings per share of 8.2p and a flat 0.9p dividend.

A markdown to 55p presents a buying opportunity at Cambria Automobiles. (JC)

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