On paper, Marshall Motor Holdings (LSE: MMH) appears to be one hell of a catch for top-value dividend chasers. A forward P/E ratio of 6.5 times sits well inside the bargain-basement watermark of 10 times, while a 5.7% corresponding dividend yield suggests the possibility of some mighty income flows coming down the pipe.
Times have been tough for sellers of ‘big ticket’ goods like car retailers as the intense political and economic uncertainty associated with Brexit has seen both individuals and businesses keep their chequebooks firmly closed. Marshall tried to put a positive spin on things last week, however, by commenting it had “performed well in this challenging market.”
But for me the outlook for this AIM-quoted share is far too risky to make it a sensible investment today. It’s not just that the company is being crushed because of uncertainty over the UK’s future relationship with the European Union.
As Marshall said last week, as well as suffering from “continued weak consumer confidence as a result of political uncertainty over Brexit,” it advised “ongoing cost headwinds and vehicle supply constraints due to the implementation of further emissions-related regulations in September 2019” have also dented business.
Car crash numbers
Indeed, the trading environment continues to get worse and worse. Marshall said in recent days that conditions had weakened still further in the final three months of the current calendar year, though it’s a comment that can’t exactly be considered a revelation given the state of industry data throughout 2019.
Indeed, according to the Society of Motor Manufacturers and Traders (SMMT), new car sales dropped another 1.3% in November, to 156,621 units, as sales to private consumers and companies fell 6.1% and 3.2% respectively. In the year to date, total sales are down 2.7% from the first 11 months of 2018, at 2.16m, the association added.
And what’s more, the SMMT expects annual sales to tank again in 2020. It’s forecasting total new registrations of 2.3m in 2019, a figure that would represent a 2.8% year-on-year fall if realised. It expects the rate of decline to worsen next year too, when a projected 2.2m new sales would mean a 4.4% annual contraction.
Drive on by
Now the number crunchers are expecting Marshall Motor Holdings to bounce from an anticipated 18% earnings drop in 2019 with a 3% bottom-line rise next year, though clearly hopes of any sort of profits rebound are built on extremely shaky foundations at the present time.
In fact, I think it’s prudent to say that, with the UK yet to begin tough trade negotiations with its 27 former European Union colleagues, and proposed law changes this week raising the threat of a no-deal Brexit at the end of next year, it’s possible Marshall will see demand for its cars continue to shrink in 2021 and thereafter.
The business is cheap, sure, but it’s cheap for a reason. I for one will keep on avoiding it like the plague.
Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.