Thursday newspaper share tips: Vertu Motors, Old Mutual
By Andrew Schonberg
Date: Thursday 02 Jun 2016
(ShareCast News) - Car dealer Vertu Motors has had a "Buy" opinion placed on it by the Telegraph's Questor column, which cites likely improvements to next year's results and broker upgrades after news of a recent deal.
The Gateshead-based outfit said on Wednesday that it had nabbed five car dealerships for £18.7m as it continued with its expansionist plans. It added Toyota to its stable of brands for the first time.
"This," wrote Questor, "means the company's management has completed a large proportion of a promised £26m of acquisition deals outlined after a fundraise in March ahead of time, and there are expected to be more opportunities to buy."
In addition to pointing out the likely benefits of this latest spree to Vertu's next-year numbers, and earnings upgrades by brokers, Questor said Vertu was already known as a steady performer.
It had delivered annual growth in the past nine half-year periods.
"It can benefit from organic growth and mergers and acquisitions in the coming months, as the market for cars remains favourable," the column said.
"The rise of consumer finance, particularly in a low-interest rate environment, is also boosting business," it added.
Vertu's shares were presently trading at an almost 12-month low of about 56p, down from about 79p in January.
Questor observed that the car dearler's consensus target price for the next 12 months was 93.5p a share, with at least one coming in as high as 100p.
Meantime, the Financial Times' Lex column wrote that Old Mutual's proposal to bump-up chief executive Bruce Hemphill's incentive plan was not such a daft idea.
The London-domiciled company -- whose shares have gained a lacklustre 4% over the past 10 years -- had underperformed peers Legal & General and Prudential.
"In response," wrote Lex, "it has proposed bumping up the maximum long-term bonus of its chief executive from 250% of base salary per year to 1000% over three years."
But the column noted an unusual caveat -- Hemphill must first deliver on plans to break the company into four elements by end-2018. Success would duly see him out of a job.
These constituent parts would be US asset management, UK wealth management, a South African bank and an emerging markets insurer.
Lex noted the rewards on the table for Hemphill appeared eye-popping, but observed they were no more so than those on offer at rivals.
RSA Insurance's maximum bonus was 230% a year, while Standard Life's was 500% and Prudential's came in at 400%.
Half of Hemphill's proposed bonus would be paid a year after Old Mutual split, and its payment depended on several performance benchmarks at the new standalone businesses being met.
"Even a modest improvement in Old Mutual's valuation would translate into big benefits for shareholders," said Lex, observing the shares have long traded at a discount to its peers'.
The column noted application of an average peer valuation of 12.3-times on 2017 earnings for Old Mutual would see its shares priced at about 236p. They presently traded around 178p.
Lex contended critics of Hemphill's incentivisation should ask themselves whether they preferred to spend £9m for £2.8bn of additional value, or something else.
The alternative, it argued, was for Old Mutual to "suffer another decade of stagnation."
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