21 October 2013

It’s a rather sobering thought that shares in Vertu Motors, undoubtedly one of the UK’s most successful auto retailers, have only just climbed back to their initial, 2006 flotation price of 60p.

Start-up investors, in for the long term, have watched the company grow but are only now looking at a possible return on their money. With a dividend yield of around 1.5%, it’s not even kept pace with inflation.

This is not meant as a criticism of the management of Vertu; far from it. They are not the only listed auto retailer that has seen its value slide (and now recover) over the past eight years.

It’s more a reflection on how difficult it is to make money from investing in the auto retail industry and, as consequence, why many professional investors steer clear. By and large (Inchcape might be considered the exception) auto retail stocks are seen as high risk, medium term gambles.

You don’t need to be reminded that it’s hard to make money in this business; and many investors feel the same way. If there is money to be made, it’s through short term action. Buy low, sell on a rise and don’t think about the long term.

Should we care? In what way does this affect the privately-owned dealership trading through a wet October weekend?

Confidence in our industry is a wider issue than just stock market values. Car manufacturers, banks, finance houses – even customers – need to feel the business has a future before they’ll invest, lend money or buy cars. That feeling is driven by confidence.

So, the fact that Vertu is back to pre-float prices (and other listed groups have seen substantial gains) is more than just a neat statistical fact. It’s a sign that confidence in our industry is returning and should be a cause for celebration.

Let’s hope the banks and the customers see it that way too.

Rupert Saunders

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Tags: Bristol Street Motors, dealer profits, FLOATATION PRICE, SHARE PRICES, Vertu Motors