First Car Rental an asset to CMH Group
FINWEEK REPORTS: Combined Motor Holdings suffers from the market misconception that its business is directly correlated to the economic environment, and new vehicle sales in particular, writes Dr Andrew Dittberner
Possibly one of the most misunderstood shares on the market, Combined Motor Holdings (CMH) presents an exceptional opportunity at current levels. While the company operates at the sharp end of the economy, there is a misconception that this business is directly correlated to the economic environment, and new vehicle sales in particular.
While CMH is largely thought of as a motor vehicle retailer, it is important to realise that motor dealerships derive a large portion of their incomes from after-market servicing, as well as used-vehicle sales, as oppose to just new vehicle sales. As such, recent new vehicle sales numbers should not be seen as a leading indicator for CMH's earnings.
Evidence of this can be seen in the company's recently released trading update indicating that for the six months ending August, headline earnings per share (HEPS) is expected to be up between 15% and 25%. Those numbers are a far cry from Naamsa's recently published new vehicle sales, which show a sharp decline.
Alongside the dealerships, CMH also owns First Car Rental, a proudly South African car rental company that has been in business for over 17 years. First Car Rental has delivered excellent performance over a couple of years, with earnings having enjoyed an average annual compounded growth rate of 28% since 2008.
Unsurprisingly, First Car Rental contributed 24% of group operating profits at the 2016 full-year results, released earlier this year. The business proposition of owning First Car Rental is enhanced by the group's ability to sell new vehicles to First Car Rental, as well as selling its used vehicles.