Send in the clones

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The Independent Online
MOTOR WORLD is one of the largest chains of stores selling car parts and accessories, with a network of 178 outlets. So far, it has concentrated its stores in the North of England, Wales and the Midlands, but there are plans to build a national network.

Motor World is blessed with the most important characteristic of many great growth stocks - a distinctive retailing formula that it can continue to clone.

Unlike Halfords, its main competitor, Motor World shuns prime sites and out-of-town units. Its stores are usually in prominent positions away from the high street. A typical choice would be a corner site on a busy road close to parking facilities.

Every motorist in the country is a potential customer for Motor World. And in 1992, there were 24 million cars on the road. Despite the recession, Motor World's sales per outlet have grown steadily over the past five years.

In addition to the retail network, Motor World also owns Autogem and Panther, companies that manufacture, package and supply car parts and accessories to retailers, cash- and-carry outlets, fast-fit operators such as Kwik-Fit, and garages. Autogem is a warehouse distribution operation supplying 5,500 product lines on a next-day delivery basis throughout the United Kingdom. Panther packages and supplies products such as L-plates, door guards, speakers and aerials. Motor World's retail outlets account for 57 per cent of its turnover.

The 178 retail stores made 64 per cent of Motor World 1992 profits. As such, they are the key to the company's future growth. A manager and an assistant manager operate each store and supervise an enthusiastic and knowledgeable staff.

Most of the stores are about 1,500 sq ft, stocking a wide range of more than 4,000 products. They are usually open seven days a week and offer a 24-hour service for any parts not in stock.

The managing director, Darrell Kershaw, is a Yorkshireman who trained as a motor mechanic. I am very impressed by his commercial approach - after a trial period of about a year, he closes any shop that fails to respond to the management's best efforts to make it profitable.

Motor World opened 33 new stores in 1992, and future expansion could be faster, especially if the company acquires any small chains and if the economy comes out of recession. The company's warehouse in Bradford has additional land for expansion, but even now could service up to 300 stores.

Motor World became a public company in February. Its shares rose rapidly from the placing price of 210p to more than 280p but have since drifted back to 257p. At this price, with earnings per share of 16p, they are on a historic p/e ratio of 16.1. The issuing broker, Beeson Gregory, forecasts 12 per cent EPS growth for the year ending October 1993 and 15 per cent for 1994. Judging by past performance, I believe that these estimates will prove to be very conservative, so I am confident of at least 15 per cent in 1993. This would increase EPS to 18.4p, giving a prospective p/e ratio of 14.

EPS SURPRISE

The price earnings growth factor (the price you pay for growth, established by dividing the growth rate into the prospective p/e ratio) is just under 1, which is a trifle high by my normal standards. However, I have a hunch about Motor World and believe that future growth in EPS could surprise everyone.

The company is capitalised at only pounds 36m, has excellent management, a dividend yield of 4 per cent and negligible debt of under 10 per cent. Above all, Motor World has a distinctive retailing formula to clone, which should ensure a bright long-term future for the company and its shareholders.

The author is an active investor who may hold any shares he recommends in this column. Shares can go down as well as up. He has agreed not to deal in a share within six weeks before and after any mention in this column.

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