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Leveraging Volume Purchasing From China Will Optimize UK Operations

WA
Consensus Narrative from 4 Analysts

Published

February 09 2025

Updated

February 09 2025

Key Takeaways

  • Enhanced global procurement strategies and leveraging volume purchases from China aim to optimize cost and improve margins.
  • Organic growth in Aftermarket Parts through strategic acquisitions and innovation focus boosts revenue and profitability potential.
  • High finance costs, competition in imports, and reliance on South Africa's economy pose risks to Motus Holdings' financials and revenue forecasts.

Catalysts

About Motus Holdings
    Provides automotive mobility solutions in South Africa, the United Kingdom, Australia, and Asia.
What are the underlying business or industry changes driving this perspective?
  • Motus Holdings is focused on enhancing its margins through improved global procurement strategies, particularly by leveraging volume purchasing from China for their U.K. operations. This strategy should optimize cost structures and positively impact net margins.
  • The company is seeing significant organic growth potential in its Aftermarket Parts division, especially due to strategic acquisitions and new distribution setups like the warehouse in Poland. This offers an opportunity for revenue expansion and margin improvement in the next few years.
  • There is an emphasis on innovation and digitization within the group, aiming to improve internal efficiencies and customer experience. This should support profit margins and may lead to better earnings in the long term.
  • The reduction of inventory levels is a priority, a move that is expected to decrease finance costs over time, leading to a potential increase in net earnings.
  • Expected interest rate reductions and improved sentiment within key markets such as South Africa should boost new vehicle sales, impacting revenue positively and potentially leading to higher operating profits.

Motus Holdings Earnings and Revenue Growth

Motus Holdings Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?
  • Analysts are assuming Motus Holdings's revenue will grow by 6.4% annually over the next 3 years.
  • Analysts assume that profit margins will increase from 2.1% today to 2.7% in 3 years time.
  • Analysts expect earnings to reach ZAR 3.7 billion (and earnings per share of ZAR 21.53) by about February 2028, up from ZAR 2.4 billion today. The analysts are largely in agreement about this estimate.
  • In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.5x on those 2028 earnings, up from 8.0x today. This future PE is greater than the current PE for the ZA Specialty Retail industry at 10.0x.
  • Analysts expect the number of shares outstanding to grow by 0.56% per year for the next 3 years.
  • To value all of this in today's terms, we will use a discount rate of 22.87%, as per the Simply Wall St company report.

Motus Holdings Future Earnings Per Share Growth

Motus Holdings Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?
  • The South African business, a significant part of Motus Holdings, saw a 20% decline in operating profit, influenced by a challenging local economy, which could pressure future revenue and earnings growth.
  • High finance costs due to previous overstocking and strategic investments have increased the financial burden, impacting net margins and overall profitability.
  • The import and distribution segment struggled, with a 45% decline, partly due to increased competition and internal challenges, potentially affecting revenue streams and margins.
  • Motus faces reliance on improved interest rates and economic conditions in South Africa to kickstart market demand for vehicles, introducing potential risks to forecasted revenue and sales if conditions do not improve.
  • Although international operations have bolstered results, the high dependence on diversifying outside South Africa introduces execution risk, particularly if global economic conditions fluctuate, affecting earnings stability.

Valuation

How have all the factors above been brought together to estimate a fair value?
  • The analysts have a consensus price target of ZAR141.73 for Motus Holdings based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ZAR173.92, and the most bearish reporting a price target of just ZAR123.0.
  • In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ZAR137.1 billion, earnings will come to ZAR3.7 billion, and it would be trading on a PE ratio of 12.5x, assuming you use a discount rate of 22.9%.
  • Given the current share price of ZAR111.0, the analyst price target of ZAR141.73 is 21.7% higher.
  • We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

How well do narratives help inform your perspective?

Disclaimer

Warren A.I. is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by Warren A.I. are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that Warren A.I.'s analysis may not factor in the latest price-sensitive company announcements or qualitative material.

Read more narratives

Fair Value
R141.7
22.4% undervalued intrinsic discount
Analyst Price Target Fair Value
Future estimation in
PastFuture0137b20162018202020222024202520262028Revenue R137.1bEarnings R3.7b
% p.a.
Decrease
Increase
Current revenue growth rate
6.33%
Specialty Stores revenue growth rate
0.22%