The company closed out FY21 debt-free with a high dividend yield, as it executes on a long-term rollup growth strategy.
National motorbike dealership group Motorcycle Holdings (ASX:MTO) confirmed a strong operating result this morning, booking an 86% surge in full-year net profit to $28.3m.
But while post-COVID consumption tailwinds benefitted the sector more broadly, MTO’s management team also executed on a number of key operational initiatives.
Along with strong profit growth, MTO has also built out an expanded dealer network, increased its margins and introduced new product channels. Tighter control over operating expenses also contributed to the improved result for the year.
And speaking with Stockhead following the result, CEO Dave Ahmet said the company is now positioned as Australia’s dominant long-term motorcycle dealership with a platform for ongoing long-term growth.
Operational strength
MTO’s FY21 results showed the company booked annual revenues of $433.9m, up 18% from the previous year.
Combined with operational efficiencies, that flowed through to the bumper net profit results which Ahmet said was “probably the standout of this year’s numbers”.
He said that as a sector, motorcycle dealerships benefitted from a pickup in activity as household savings rates rose during the pandemic.
However, “that’s only half the story”, he said.
“The other half is what we’ve done with the business in that time to extract growth and improve our market position”.
Ahmet noted that across the sector, overall unit sales rose by around 12% in FY21. But in terms of new-unit sales, MTO increased volumes by 20% — almost double the industry average.
In addition, those revenue gains flowed through to a 26% increase in gross profit, which rose to $128.5m.
He attributed those margin gains to an increased focus on the right product mix, with strong growth in premium brands such as Indian Motorcycles and Harley-Davidson.
Concurrently, the company also turned around sales volumes and gross profit margins in used bikes after inventories became scarce in the wake of the pandemic.
“If you look at that margin growth it was a combination of our product mixes combined with good inventory management, and I’m really proud of what the team was able to accomplish operationally,” Ahmet said.
Platform for growth
MTO is also heading into FY22 debt-free, after closing out the previous financial year with more than $40m of loans on the balance sheet.
“That gives you an idea of how much cash we’ve generated, to pay that down and pay a dividend,” Ahmet said.
“So, it leaves us in a good position to increase the size of our market footprint. Not just in motorcycle dealerships but all other motorcycle-related businesses.”
While post-COVID vehicles sales rose across the board, MTO’s full-year numbers confirmed its ability to outperform the market with its own set of unique competitive advantages.
Along with its exclusive distribution partnership with Indian, the company has deals with off-road specialists Polaris along with Royal Enfield motorcycles.
FY21 also saw MTO expand its footprint in jet-ski sales and diversify into power (tools) equipment and mowers.
And after a three-year period of in-market development, MTO also generated a $900,000 net profit in FY21 from its wholesale vehicle financing division which is now expected to be a material profit driver in the years ahead.
The company successfully converted all of those strategic initiatives while also executing on an 86% profit lift amid the disruptions caused by COVID-19.
And while outbreaks in Sydney and Melbourne have affected trading conditions in the new financial year, Ahmet said the company is still on track for a strong performance in FY22 as it leverages its market-leading footprint in the domestic market.
The year ahead
Along with its strong net profit figure, MTO also announced an additional 10c dividend to bring its full-year dividend payout to 20c.
Based on the company’s current valuation, that marks an attractive dividend yield of more than six per cent.
“I think the market expects those post-COVID tailwinds to ease off to some degree. But what we’re seeing is very consistent numbers in terms of that monthly growth,” Ahmet said.
And in addition to that strength in the broader market, MTO is positioned to leverage each of its unique profit drivers to outperform the market.
“Those profit drivers aren’t all COVID-19 related. They’re also internal milestones we’ve been able to achieve,” Ahmet said.
“Even if demand does slow down, we’re not going to lose all of these additional profit centres from the business and we still have the benefit of the new initiatives introduced over the last 12 months.”
With a strong balance sheet and operational strength across each of its key verticals, MTO is now uniquely positioned to seek growth through M&A as it looks to consolidate what’s currently a highly fragmented industry.
“We know the opportunities are there, it’s just about getting the valuations we’re happy with,” Ahmet said.
This article was developed in collaboration with Motorcycle Holdings, a Stockhead advertiser at the time of publishing.
This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.
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