Cambria Automobiles is a United Kingdom based auto dealership group that was founded by
current CEO Mark Lavery in 2006 to pursue a dealership roll-up strategy. Lavery owns 40% of
the outstanding shares and from a starting capital base of only £10.8m has built Cambria into a
business with a market cap of £58m along with operating earnings of £11.8m in 2017. This
impressive performance over the past 11 years has been achieved during a period that has
included two recessions in the UK.
Auto dealers are high quality businesses and Cambria has averaged an ROE in the high teens. In
2017, Cambria earned an ROE of 20%. 40% of Cambria’s gross profits are generated by
aftermarket (parts and service) which is not cyclical and will benefit from multiple tailwinds over
time. Used car sales make up another 30% of gross profits and this portion of the business is
consistent and growing.
Cambria is trading for just 6.3 times earnings. Earnings are being depressed by two temporary
factors that I will discuss in further detail in the valuation section. Going forward, Cambria’s
business has multiple tailwinds that will benefit earnings in the long run. 1) High margin
aftermarket parts and service revenue is consistently growing. 2) Many of their acquired
dealerships have not reached their full operational potential. 3) There are six capital projects
under way that will contribute to earnings once complete. 4) Cambria’s management team has
demonstrated intelligent capital allocation decisions over time and I expect them to continue to
deploy existing cash flows into intelligent acquisitions.
Cambria trades at a large discount to peers in the United States and historical acquisition
multiples in the UK. In the next 5-7 years, I believe Cambria will reach £1 billion in sales and
earn a 2% pre-tax margin. If this is achieved and Cambria trades in line with US peers and
historical buyout multiples, Cambria is likely worth 4 times the current price.
Business
Cambria is comprised of 31 dealerships representing 46 franchises and 16 brands. Brands consist
of Abarth, Alfa Romeo, Aston Martin, Dacia, Ford, Fiat, Honda, Jaguar, Jeep, Land Rover,
Mazda, Nissan, Renault, Seat, Vauxhall, Volvo, Triumph, and they will soon add ultra-luxury
brands Bentley and McLaren.
Cambria has a unique strategy. They purchase sub-scale and underperforming dealerships and
implement extensive processes and systems to improve operations. A typical seller is an
entrepreneur that is either retiring or looking to sell out. There are over 5,000 individual auto
dealers in the UK and ownership is very fragmented, with most operators owning just one or two
dealerships. Oftentimes these dealerships are inefficiently run and sub-scale without the ability to
purchase expensive software and other processes to optimize their business. Scale matters in the
auto dealership business and Cambria has been very successful implementing a buy and build
strategy over the past 11 years.