Shares of Gateshead-based Vertu Motors plc rose about 8% on Friday after it published a positive trading update and announced it will buy back some of its shares and re-establish the payment of dividends.
Vertu upgraded its estimate for profit before tax for the current financial year to be in the range of £50 million to £55 million — it previously estimated £40 million to £45 million — and said it intends to re-establish the payment of dividends to shareholders after finalising its interim results.
On trading, Vertu said: “The group continues to experience strong used vehicle gross margin retention, driven by the exceptional UK used car market conditions.
“Consequently, the group expects that it will deliver an adjusted profit before tax of no less than £50m in the six months to 31 August 2021.
“The group’s like-for-like new vehicle order take for the key month of September is currently running in excess of prior year levels, however, there is a risk that well documented new vehicle supply shortages will result in vehicle deliveries being delayed into future periods.
“As a consequence of reduced new vehicle supply, used vehicle supply may also be restricted in the coming months.
“Uncertainty also remains around the possible impact of COVID-19 from potential future restrictions and colleague absence.
“The current UK wide labour shortages, high vacancy levels and upward pressure on employment costs remain a risk for the business.
“The board remains cautiously optimistic and is upgrading the estimate for profit before tax for the current financial year to be in the range of £50m to £55m (previously £40m to £45m).
“As a result of the strong performance seen in the financial year to date, the board intends to re-establish the payment of dividends to shareholders upon finalisation of the interim results.
“The board remains very confident in the prospects for the group, which is strategically well placed to capitalise on the changes and opportunities in the UK motor retail sector.”
On the share buyback, Vertu said: “The share price of the company for some time has traded at a discount to the tangible net asset value and in the opinion of the board below the intrinsic value of the business.
“As the company has a low level of debt and is considerably cash generative, the board considers it appropriate to allocate some capital to buy back shares.
“Accordingly, the company announces its intention to commence a share buyback programme.
“Under the buyback programme, the company will seek to buy back its ordinary shares of 10p each using the company’s existing cash resources for an initial amount up to £3.0 million, between now and 28 February 2022.
“The debt capacity of the company and positive cash flow is such that we will continue to consider acquisition and investment opportunities as part of the pursuit of the ongoing growth of the business.
“The company will seek to buy back its ordinary shares at appropriate times and considers, at the present time, the buyback programme to be in the best interests of all shareholders.
“The company has entered into an agreement for its broker Zeus Capital Limited to carry out purchases of its ordinary shares under the buyback programme on its behalf. Zeus Capital will seek to purchase ordinary shares up to the value of £3.0 million.
“The total maximum number of ordinary shares to be purchased is capped at 30 million, based upon the nominal value of the company’s ordinary shares …
“Any ordinary shares repurchased will be cancelled.”