Berenberg resumes coverage on Pendragon at 'buy'

Analysts at Berenberg resumed coverage on used car dealers Pendragon at 'buy' on Friday after suspending its coverage on the stock back in September, stating the firm was now "back to business".

When Berenberg pulled coverage of the stock in September, Pendragon announced that it had received a proposal from its largest shareholder, Hedin Group, regarding a possible offer for the company for 29.0p per share. However, Hedin withdrew its offer on 9 December, citing the "challenging market conditions and uncertain economic outlook".

The German bank, which issued the group with a 35.0p target price, also highlighted that Hedin Group was not the only party to have shown interest in Pendragon at levels well above the current share price of 19.0p, with US-listed outfit Lithia Motors also presenting an offer for the group at 29.0p per share.

Berenberg admitted that there were "a number of factors" that will likely impact Pendragon moving into 2023, with recent interest rate rises set to weigh on the group given that its vehicle stocking lines, as well as some of its borrowings, were accessed at variable rates. Berenberg also said considerations were present in respect of wage inflation, although it noted there should be some support from a recovery in new car volumes.

However, the analysts added that it continues to believe that Pendragon has been presented with "an attractive opportunity" to grow operating profit over the medium term.

Reporting by Iain Gilbert at Sharecast.com