Marshall of Cambridge

www.marshallgroup.co.uk
Ticker: Private

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.

Latest Reports

Outlook remains promising

Published: 7th September 2020

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.

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Very much on track

Published: 8th June 2020

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.

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Creating long-term value

Published: 1st June 2020

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.

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Significant contract win

Published: 13th May 2020

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.

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A game of two halves

Published: 2nd September 2019
The H1 results from Marshall of Cambridge were modestly below last year’s outcome, largely reflecting the difficult market conditions within motor retail (MMH). However, what provides us with confidence for the full year outlook and beyond is the level of contract wins secured by the Group’s aerospace & defence subsidiary (MADG). 

Due to the planned investment undertaken within the business this year the dividend has been held. The balance sheet remains very strong, which will provide management with the firepower to take advantage of both M&A and investment opportunities, as they arise.

Divisional revenues at MADG in H1 were 8.9% higher year-on-year, and its order book increased markedly during the period to £900m. Even excluding the order book for the UK MoD C-130J fleet, whose contract was recently extended to 2035, the pipeline still rose 33% from the year-end to £600m. In addition, the Land Systems sub-division also grew its order book by 19% to £200m. The Global 6000 project work continues as anticipated, with the customer signing an in-territory support contract during H1. We believe that the commencement on the newer contracts should result in an even stronger H2 and beyond. 

MMH delivered revenues marginally ahead (+0.9% on a like-for-like basis, including the dealership acquisitions), which markedly outperformed a deteriorating motor retail market and saw gross margins maintained at 11.4%. In the short-term challenges remain for MMH: a combination of Brexit (potential backlog of vehicle imports) and waning consumer confidence due to political and economic uncertainty, plus the potential for supply disruptions as new emissions legislation is introduced (WLTP). 

H2 2019 is expected to be eventful for the Property division. Following the construction of the GRE to reduce noise pollution from the airfield, detailed planning permission is expected for the first phase of the Marleigh development. Infrastructure on the site is already in progress, with reservations for new homes anticipated during H1 2020. Outline planning approval for the development on land north of Cherry Hinton is expected during Q1 of next year. 

The new management team within Fleet Solutions has begun the process of turning the business around. The rising order book should result in a stronger H2 outcome, with the division moving to break-even in H2 2020. 
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First step in creating long-term value

Published: 21st May 2019
The backbone of success for Marshall of Cambridge (MCH) has been the Group’s desire to adapt and stay ahead of its rivals by being prepared to move decisively where strategic opportunities present themselves. As evidenced last week, when MCH announced that by 2030 it was intending to relocate its division MADG from its 900 acres site at Cambridge Airport to new, state-of-the-art facilities at one of 3 possible venues: Cranfield, Duxford airfield or RAF Wyton.

This move would  allow MADG to more easily service its widening international client base, whilst freeing up vital capital to further invest in its cutting edge aerospace/defence capabilities, along with MCH’s other interests. This could also lead to perhaps hundreds of new highly skilled jobs being created. 

Equally, the plan should provide the local community with an urgently required source of quality residential houses (up to 12,000), commercial property (5m sq ft) and transport solutions. A ‘win-win’ for the shared benefit of all stakeholders. 

One must be aware that there are still many hurdles to climb before this can become reality, such as obtaining full planning permission, choosing MADG’s next home, relocating employees/equipment, and finally redeveloping the Cambridge site. 

This is why at this stage, we conservatively retain our 533p/share valuation and financial forecasts. Albeit, we certainly recognise the significant potential of the announcement to create additional long-term value. 

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Undervalued Aerospace and Defence stock

Published: 10th May 2019
Marshall of Cambridge (Holdings) Ltd is a private, family owned company that was founded in 1909 and is now of significant size, employing 5,786 staff.

In 2018, the business generated over £80m of EBITDA on revenues of £2.5bn, and has significant organic opportunities ahead. We expect accelerating expansion at its leading aerospace/defence (MADG) and motor retail businesses (Marshall Motors which is AIM listed, but owning a 64.46% shareholding). 

Additionally there is scope to address  its loss making Fleet Solutions arm, and to be more active in high-tech venture capital investments. And in terms of assets the Group might be able to unlock significant value over time from its 900 acres estate at Cambridge. 

The non-voting priority ordinary shares (NVPOs) can be traded freely via a special off-exchange matching facility administered by stockbroker James Sharp. The NVPOs currently attract business property relief, and so can fall outside a person’s estate for inheritance tax purposes.

The most recent traded price for a NVPO was 285p, yet our analysis (using sum-of-the-parts methodology) indicates a current fair value for the Group of 532p. We would note that this excludes any further upside arising from additional land being made available for redevelopment. 



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Extended life

Published: 5th August 2019
We note the recent article in Jane’s Defence Weekly of the decision by the UK MoD to extend the life of the RAFs fleet of 14 Lockheed Martin C-130J/C-130J 30 Hercules transport aircraft by a further five years to 2035. Marshall Aerospace and Defence Group (MADG) has begun the work required to extend the life of the Hercules fleet. 

In addition to recent contract wins, we also view this announcement as good news, extending the life of what has been a significant programme for the business. While we are leaving estimates unchanged, we reiterate our valuation per NVPO share at 532p, which represents a near 64% premium to the last average share price trade. 

MADG, a specialist system engineering and project management business, had originally secured a contract to provide whole-life maintenance/support for the Hercules fleet in 2006. This latest announcement represents the second time that the life span of the RAFs Hercules fleet has been extended - the previous occasion being within the 2015 Strategic Defence and Security Review, from 2022 to 2030. 

The work necessary for prolonging the life of the fleet includes the replacement of the centre-wing box (CWB). This represents part of the wider £350m investment budgeted by the MoD in the Hercules fleet and announced in September 2016. The expenditure will be split into £200m on key components (including the CWB) to extend the aircraft’s life and a further £150m of upgrades to enhance its capabilities. In comparison with its ultimate replacement, the Airbus A400M, the Hercules benefits from an ability to take off and land on short runways and this is operationally invaluable. 

Like any project work, revenues are likely to be ‘lumpy’ in nature. Yet, we also note the steady improvement in the division’s book-to-bill ratio (excluding the Hercules Integrated Operational Support (HIOS) contract with the UK MoD), which rose to 2.51:1 in 2018 from 1.27:1 in 2017. This provides work to keep more of the hangars busy at any one time.

Looking ahead, we anticipate that the next trading update for Marshall of Cambridge will be in September, following the Interim results from its 65%-owned quoted subsidiary, Marshall Motor Holdings PLC (MMH). 

Valuation

Our FY19 and FY20 estimates are unchanged following this announcement, as the work will be performed over the medium term, mostly beyond the scope of our current estimates. However, in terms of sentiment and future earnings visibility the announcement clearly represents good news for MADG. 

We retain our valuation of 532p per NVPO share.

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