LCM Investments Holdings II LLC

Overview Key strengths Key risks Resilient business model with diverse revenue streams. Rising risk of disruption from online competitors, direct-to-consumer sales models, and electrification of cars. Above-average EBITDA margins even before recent price increases for vehicles. Significant geographic concentration and more modest scale than public peers. Consistent free cash flow generation. Operation in a fragmented and competitive industry. Morgan Auto generated record EBITDA margins of 9.6% during 2022 as a limited supply of new and used vehicles led to significantly increased car prices, which raised revenues and profitability. In particular, dealerships charged prices far above manufacturer?s suggested retail price, leading to unsustainably high new vehicle margins. As production continues to recover and demand cools off due to increasing interest rates,

...Our base forecast for LCM Investments Holdings II LLC (dba Morgan Automotive Group) assumes margins contract in 2023 as vehicle pricing moderates. Morgan Auto generated record EBITDA margins of 9.6% during 2022 as a limited supply of new and used vehicles led to significantly increased car prices, which raised revenues and profitability. In particular, dealerships charged prices far above manufacturer's suggested retail price, leading to unsustainably high new vehicle margins. As production continues to recover and demand cools off due to increasing interest rates, we expect new vehicle prices will fall and used vehicle prices to resume their downward trajectory. We already see rapid contraction in new vehicle gross margins at dealerships and expect these factors will lead to lower EBITDA margins in the 6.5%- 7% range for Morgan Auto. While profitability is lower in our base-case forecast versus the prior year, we forecast Morgan Auto's EBITDA margins will remain above the mid-5% area from...

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