Pendragon surges as investors welcome in-line results after tough time

Profit at car dealership Pendragon dropped nearly 20% in the year to 31 December 2017 as operating margins declined and new vehicle revenue slid, but after a profit warning from the group in October and amid more general car market woes, investors were relieved that the numbers were in line.

Underlying pre-tax profit fell to £60.4m from £75.4m the year before, with new vehicle revenue down 8.9% to £1.8bn and the operating margin down to 1.2% from 1.8%. Meanwhile, used vehicle revenue was up 15.2% at £2.1bn, while aftersales revenue was 5.2% higher at £350.6m.

Pendragon said it expects new car sales to fall by 6.6% this year, with the first half of 2018 seeing a higher degree of decline than the second half due to the stronger comparatives and the new market returning to more normal levels of activity in the second half.

The Society of Motor Manufacturers and Traders is currently expecting the 2018 market to be down 5.6% on the previous year.

Pendragon said that following a "challenging" trading period in the third quarter of 2017 in particular, it experienced a recovery in the fourth and expects to make progress this year on its strategic objectives.

Chief executive Trevor Finn said: "The group has a clear focus and direction to transform the business and double used revenue by 2021. This will be enabled by our market leading software business to provide the online and technology platform and by investment in increasing the used retail and aftersales representation points in the UK.

"We made further progress towards our goal of doubling used vehicle revenue with growth in the period of 15%. We anticipate our performance in 2018 to be in line with expectations."

The company also said on Tuesday that it plans to reduce its premium franchise locations over a three-year period, a move that should release £100m of capital through a mixture of disposal proceeds and investment not deployed.

Canaccord Genuity said the results were in line with its expectations, as it had pencilled in £59.5m of pre-tax profit.

"With the shares having been hit hard in recent weeks, and in the light of Vertu's recent update, an in-line statement from Pendragon should be taken positively by the market today," it said.

Fellow car dealership Vertu Motors warned last month that trading for the year ending 28 February 2018 would be "moderately" below market expectations following further declines in the new car market due to a weaker pound and a softer general consumer environment.

Liberum analyst Adam Tomlinson said underlying pre-tax profit was in line with expectations, which were lowered 19% at October’s profit warning, while the divisional performance was broadly as expected.

At 0910 GMT, Pendragon shares were up 13.9% to 23.80p.