Our opinion on the current state of CMH(CMH)Combined Motor Holdings (CMH) operates 43 car dealerships representing 28 brands, including major names like Nissan, Volvo, Toyota, Opel, Subaru, Lexus, Mazda, Isuzu, and Ford. The company sells both new and used vehicles and is closely tied to the health of the broader economy, as consumers tend to hold onto their cars longer during economic downturns.
COVID-19 significantly impacted the company, prompting it to reduce its car rental staff by up to one-third, cut its fleet by 40%, and close 20 branches. Ongoing issues like electricity disruptions from Eskom and low business confidence have also negatively affected operations. Despite these challenges, the car rental division has been steadily recovering.
In its results for the six months to 31st August 2024, CMH reported a 1.3% decline in revenue and a 31.9% drop in headline earnings per share (HEPS). The company attributed these declines to poor returns in May and June 2024, influenced by political uncertainty during the run-up to the elections and the formation of a tentative Government of National Unity (GNU), which dampened consumer confidence and spending on high-cost items like vehicles.
Technically, the share made a "V-top" at 3350c on 10th May 2018 and then dropped sharply to around 950c in May 2020 due to the impact of COVID-19. Investors were advised to wait for a break above the long-term downward trendline, which occurred at 1489c on 2nd February 2021. Since then, the share has risen steadily to its current level of 3522c, where it trades at an undemanding price-to-earnings (P:E) ratio of 6.5.
In our view, CMH offers good value at these levels, making it an attractive option for investors.
