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I've mentioned MTO previously as a value play with a dividend yield of ~12.5%. What I'm not understanding is why this company is trading on a PE of less than ~4.
In their 1st half they did note there had been a softening in demand for both new and secondhand motor cycles however recent acquisitions have diversified earnings with the plan to target other acquisitions that further diversify earnings to help insulate the business during volatile times.
There's been little to no other news out from the company of late apart from a director purchase of 750,000 shares at $1.53ea totalling $1,147,500.
Although MTO's growth my slow short term imo it will bounce back and as such at current prices I'm adding more into my RL p/f.
I've taken the view....somewhat cautiously....that at current levels like a PE of less than ~6 and a dividend yield of ~9% combined with the relatively recent and somewhat transformational acquisitions that diversify both earnings and geographical reach add confidence to my decision to buy IRL as I feel risk is to the upside and for MTO to trade any lower they would have to have an absolute shocker of a 1HY result.
MTO today announced a binding agreement to acquire Mojo Group resulting in a share price pop of 15%.
Mojo is reported to be ‘one of Australia's largest importers and wholesalers of motorcycles, genuine spare parts, and accessories’.
MTO reported that…
• Based on a pro forma FY22 consolidated basis, the transaction is expected to be 18% earnings per share accretive before synergies, integration costs, and purchase price allocation (PPA) related amortisation1.
Full details can be found below…
Some interesting data I came across regarding Motorbike sales from the FCAI, who are the peak body for Australia’s automotive industry.
“A total of 47,929 motorcycles, scooters and Off Road Vehicles (ORVs) were sold from January to the end of June 2022. This represents a decrease of 14.2 per cent on 2021 figures, which is 7,911 fewer vehicles sold.
Road motorcycles grew by 4.8 per cent on 2021 figures and scooters grew by 11.4 per cent. However, off-road motorcycles and off-road vehicles declined”.
A majority of the sales reductions came in the ORV section…”this follows a decision by the major ATV brands to stop importing ATVs into Australia due to safety concerns with the new quad bike standard”. FCAI
MTOs recent revenue numbers (below) suggests they are well positioned to take advantage of an increase in road motorcycle sales.
”New motorcycle unit sales increased 6% to 14,039 units in FY22, compared to a national market increase of approximately 4%. New motorcycle revenue increased 7% to $182.7 million and gross profit also increased 6% to $21.9 million”. MTO Results 29/8/22.
I have taken a small stake in my IRL. I see the potential for good growth when taking a medium to long term view as I like the fact they not only sell the top 10 brands, but that they sell both new and used cycles, which has allowed them to mitigate supply chain issues related to new bikes. Added to this they continue to build out their service and parts arm and along with an insurance arm they are looking to provide a one stop shop for purchases.
In the recent results Managing Director and CEO David Ahmet made note ‘that there could be subdued buying conditions ahead but they continue to execute their growth strategy (acquiring new dealerships), whilst continuing to look at entering industry segments they don’t operate in and also seek to diversify their product range’.
In what seems like a fragmented industry MTO which is profitable seems to be in a position to continue to purchase additional dealerships. If they can continue to grow and build out their network I can see MTO being a much larger business in years to come even if the next year may be a little subdued.
Reasonable results for MTO in an increasing rising interest rate environment.
My first few thoughts were that 1) motor bikes are a “fuel inflation hedge” when compared to filling up a car / SUV etc or 2) individuals purchasing Harley’s and Indians are not buyers being impacted by increasing interest rates.
Possibly it’s a little from bucket 1 and a little from bucket 2.
summary below.
The company was on the “fool” site yesterday and I was attracted to the financials. I am interested if any other straw members have been following this company and their thoughts?
FY22 Interim Results:
02-Feb-2021: Moelis Australia: MOTORCYCLE HOLDINGS LTD (MTO): BUY: Gunning it
EVENT
Strong trading conditions lead to 1H21 upgrade. Despite the impact of the Melbourne restrictions, trading conditions have remained solid for motorcycle dealers. Demand across the country has been robust, picking up in November and December. Supply of new and used bikes and accessories has remained constrained – leading to abnormally strong GP margins. As a result, MTO now expect 1H21 underlying EBITDA to be between $26-27m ~10% ahead of guidance provided at the AGM in November for underlying EBITDA of $23-25m. Excluding the $5.8m of JobKeeper payments in the period, MTO delivered ~100% growth on the pcp. While the current elevated GP margins will return to normal once supply returns we note: (1) road bikes remain ~27% below peak levels; (2) MTO has pulled out permanent costs; (3) weaker USD should benefit MTO’s accessory wholesaling business; and (4) net cash position provides an option for M&A.
IMPACT
INVESTMENT VIEW
FY21 EPS upgrades reflect strong GP margins continuing into 2H21, however our FY22-23 earnings and $2.97 TP remain largely unchanged, BUY.
[I do not hold MTO shares.]