Marshall of Cambridge
Founded in 1909, Marshall of Cambridge (Holdings) Ltd is a private, family owned company, employing over 6000 staff led by an extremely accomplished Board. In 2019, the business generated c.£60m of EBITDA on revenues of £2.6bn and has significant organic opportunities ahead.
Outlook remains promising
The over-riding feature of the Interim results from Marshall of Cambridge Holdings (MCH) was the impact of the COVID-19 related lockdown across the businesses. However, looking forward there are many grounds for optimism. The order book remains high, with a strong pipeline of opportunities available and a rapid bounce-back in the automotive retail market. Indeed, the resumption of dividend payments highlights Management’s confidence.
While the results were disappointing, the performance of the business pre-and-post-lockdown was ahead of last year and prospects remain encouraging. Typically, the gears move slowly within government machines, but the lockdown further delayed the decision-making process. Yet no projects have been cancelled, and the pipeline of opportunities remains as strong as pre-lockdown, with suggestions in some quarters that spending on defence could, in fact, improve over the medium term.
The first half proved momentous for Marshall Group Properties (MGP) as the sales & marketing suite for the Marleigh development opened during the period. Several reservations were made, with the initial residents expected to move in during late Q4. The Group’s second development, the Land North of Cherry Hinton (LNCH), received the resolution to grant planning permission, with the necessary s106 approval expected imminently.
The motor retail business, MMH, markedly outperformed its peers within the new car market, with levels of trading recovering strongly from 1 June. One benefit of lockdown was the unravelling of working capital within MMH, resulting in the Group moving to a net cash position by the period end (£25.7m, representing a £50.6m turnaround from the 2019-year end position).
We regard the NAV of 315p / share at the half-year as strongly supporting valuation. Unlocking the long-term value in the assets base continues unabated, notwithstanding modest delays due to lockdown. Our fair value / NVPO share is unchanged at 532p.Download Now Missing Out Get our research first
Very much on track
2019 proved to be a positive year for MCH, with good progress seen post-restructuring of the MADG business, including new contracts secured which broaden the scope of the business. The property division achieved significant milestones during the year. MMH delivered revenue growth ahead of the broader market (yet again) and the restructuring of MFS began to bear fruit. Also, most recently, a covenant reset was agreed with the Group’s banks.
Group revenues rose by 6.2%, driven by strong performances at the Aerospace and Defence Group (MADG) and Fleet Solutions (MFS), plus sector beating growth at MMH. The one minor fly-in-the-ointment was the modest decline in revenues from the Group’s Property division, albeit this reflects the sale and development of two large parcels of land.
The first phase of the Marleigh development site, which includes 239 dwellings (out of a total 1,300 homes) was granted detailed planning permission during 2019. A sales office opened, with reservations since made. Outline planning permission on the Land North of Cherry Hinton site (LNCH, 1,200 dwellings) was also granted recently.
The COVID-19 related lockdown has significantly disrupted MMH: apart from 62 workshops, all dealerships were closed in late March, and 80% of employees initially placed on furlough. Longer-term, we think that the trends witnessed during H2 2019, including contract wins and a broadening of the work secured augurs well for MADG, and that MMH is likely to take advantage of the weaker automotive markets and add further franchises during 2020 and beyond.
The unlocking of value within the Group’s property base, coupled with the restructuring of MADG feeding through, encourages us to retain our long-term fair value / NVPO of 532p.Download Now Missing Out Get our research first
Creating long-term value
The resolution to grant planning approval for the Group’s housing development on land adjacent to Cambridge Airport was forthcoming late last week. This is another pivotal step in its growth strategy, and we believe the property projects will prove to be transformative to the Group’s EBIT and cash flow over the next decade.
Marshall Group Properties (MGP), a subsidiary of the Group, owns approximately 900 acres of land that comprises both Cambridge Airport and areas adjacent to it. The airport itself is less than two miles east of the city centre and nearby Marshall has two major development projects. Marleigh lies to the north and Land North of Cherry Hinton (LNCH) to the south. MGP is to develop approximately 230 acres of its land across the two sites.
Phase One of the Marleigh development is already underway, with detailed planning permission granted in August 2019 for 239 dwellings, with initial home reservations secured during Q1 2020. The entire LNCH site comprises 138 acres, with 70 supplied by MGP.
The development of the two parcels of land will transform the finances of the Marshall Group over the next decade. We expect that significant cash flow should begin to pass back into the Group from 2025 onwards, thereby enabling management to further invest in the core Marshall Aerospace & Defence Group (MADG).
In the meantime, we retain our fair value of 532p per NVPO share.
Significant contract win
Marshall of Cambridge has announced that it has secured a meaningful, five-year contract within its Aerospace and Defence Group (MADG). The contract is to supply maintenance, support and training to the Cameroon Air Force’s fleet of C-130J Hercules transport aircraft. It is noteworthy, both in scale and for the addition of the 17th customer of the airframe, again highlighting the Group’s enduring expertise.
The contract is for an initial five years, with all in-depth maintenance work undertaken at the Group’s facilities in Cambridge. In addition, MADG will provide both technical support and training under the terms of the contract, with the latter enabling the Cameroon Air Force to deliver front-line maintenance and support in Cameroon.
Adding the Cameroon Air Force contract takes the number of MADG’s C-130J maintenance related and international customers to 17, supporting the largest number of operators globally and highlighting MADG’s expertise on the airframe. MADG also has a significant maintenance contract with the UK’s Royal Air Force fleet of C-130 aircraft, which includes the enhanced Centre Wing Replacement programme (CWRP) from 2017. Under the terms of the revised Strategic Defence & Security Review, the life of the 14-strong fleet was extended to 2035 last year.
The ongoing transformation of the Group began with the restructuring of the MADG business, the commencement of land sales and the subsequent long-term development/relocation of the Group’s asset base. There is no change to our view of fair value being 532p per NVPO share.