Dealer will buy back ‘too cheap’ shares

May 10 2008 by Iain Laing, The Journal

SHAREHOLDERS in North East car dealer Vertu Motors have backed plans by directors to buy back 10% of the company. Bosses of the Newcastle company, which has quickly grown to be the UK’s 10th-biggest dealership chain, hope to enhance its earnings with the buyback.

Vertu was founded by former executives of Sunderland car sales group Reg Vardy, now owned by Pendragon, and listed on the Alternative Investment Market in December 2006 to raise a £25m war chest.

It began in earnest and rapidly spent more than £50m on buying other businesses across the country.

In its first year of operation, as well as opening a contact centre in Sunderland, it completed a reverse takeover of Bristol Street Motors for £40m and acquired Blake Group, Grantham Motors and a Jennings Ford dealership in Morpeth. Vertu, which now has more than 2,000 staff, yesterday won shareholders’ support to buy 10% of its own ordinary shares of 10p.

A spokesman said: “The directors consider that the current share price of Vertu Motors plc undervalues the company. This presents an opportunity for the company to enhance its earnings per share through the purchase of its own shares.”

Vertu revealed last November that it planned to sell surplus properties worth about £12m to reduce debt and fund further expansion.

But the company said a “small proportion” of the proceeds might now be used to help fund a share buy-back.

“This proposal does not change the company’s stated strategies of pursuing further acquisitions, in the form of franchised motor dealerships and used car only operations, together with the focused organic growth of its existing businesses,” a spokesman said. The move is seen as a way of enhancing the value of the business for shareholders.

Analysts say it is a sign the company has money to spare and believes it is valued too cheaply.

Vinay Bedi, of Newcastle investment manager Brewin Dolphin, said: “It’s a positive sign of the strength of the company.” Vertu has 47 dealerships in a national network operating under the Bristol Street Motors and Bristol Street Motor Nation brands.

Manufacturing partners include Citroen, Ford, Iveco, Honda, Peugeot, Renault, Vauxhall, Fiat Commercials and Hyundai. The company said it was now on target to see annual sales soar to £700m by next year after recording impressive interim results.

Its maiden results announced sales of £290m for the period from the company’s launch in November 2006 to the end of August last year.