I have identified two UK shares that I think could benefit from the current burgeoning second-hand car market.
A shortage of semiconductor chips and essential parts of new vehicles, coupled with the global supply chain crisis, has led to a shortage of new vehicles being manufactured. Used car sales in the UK rose 5.1% between January and March this year, compared to the same period last year.
UK shares have a competitive advantage
Motorpoint (LSE:MOTR) is the UK’s largest independent vehicle retailer. It specialises in selling used “nearly new” cars that are usually two to three years old. Motorpoint has large retail outlets strategically located throughout the country.
As I write, Motorpoint shares are trading for 243p. At this time last year, the shares were trading for 286p, which is a 15% drop over a 12-month period.
I like Motorpoint shares for three reasons. Firstly, many UK shares have seen prices dip due to a market correction in recent months. At current levels, Motorpoint shares look good value for money on a price-to-earnings ratio of 20. The industry average is closer to 30.
Next, Motorpoint possesses a competitive advantage due to its profile, reputation, and position as the largest vehicle retailer in the UK. With its extensive presence and an online arm for online sales, the business could be primed to secure sales and boost performance.
I do understand that past performance is not a guarantee of the future. However, looking at Motorpoint’s recent year-end update release last month, it said it expects to report a revenue increase of 82% for the year ended 31 March 2022 compared to 2021. It also noted its market share increased too.
Motorpoint shares could come under pressure if macroeconomic headwinds are curbed and the supply chain issue and semiconductor issue are resolved. This could mean newer cars are more readily available.
Pick #2
Vertu Motors (LSE:VTU) operates a chain of franchised motor dealerships across the country selling vehicles on behalf of well-known brands such as Audi, BMW, and Land Rover.
The company sells new and used cars. Its used car arm should be more lucrative until the current macroeconomic issues ease.
Vertu shares are currently trading as a penny stock, for 52p. At this time last year, the shares were trading for 46p, which is a 13% increase over a 12-month period. Vertu, like many other UK shares, saw its share price drop in recent months due to the stock market correction.
I think Vertu shares look cheap on a price-to-earnings ratio of just 3. In addition to this, the shares could help boost my passive income stream. Vertu shares’ dividend yield is just less than 1.5%. Of course, dividends are never guaranteed.
Looking back, I can see Vertu grew revenue and profit for three years between 2018 and 2020. 2021 levels dipped due to the pandemic. Results for the year ended 28 February 2022 were released today. Record trading resulted in an increase in revenue, profit before tax, and net cash. A dividend of 1.7p per share was also declared.
Vertu’s biggest issue could be competition in the saturated market as it continues to jostle for market share.
I’d add both of these UK shares to my holdings and believe they could provide me with lucrative returns in the longer term.
