- Pendragon delivers better than expected first quarter
- On course to ‘comfortably outperform’ profit expectations
- Signs of improvement in new vehicle supply
Shares in Pendragon (PDG) revved up 10.5% to 19p after the automotive retailer reported a stronger than expected start to 2023 and flagged ‘encouraging signs’ of improvement in the production and supply of new vehicles.
While the Nottingham-headquartered car retailer remains mindful of the risks to demand from inflationary pressures and potential further interest rate rises, it now expects to ‘comfortably outperform’ previous expectations for 2023.
STRENGTH ACROSS THE BOARD
Pendragon, which sells new and used vehicles in the UK through brands including Evans Halshaw, Stratstone and digitally-led used car sales and servicing business Car Store, delivered a 23% rise in underlying pre-tax profits to £23 million in the first quarter to 31 March 2023 despite operating and interest cost pressures.
A ‘very strong’ performance across all divisions included an impressive showing from Pendragon’s motor division, where operating profit powered 38.7% higher to £28.3 million.
OUTPERFORMING THE MARKET
Pendragon’s like-for-like new vehicle volumes were up 20.1% year-on-year, outperforming the wider market, which was up 18.4%. Gross profit per unit improved by 9.4% as the retailer maximised margins through lower levels of vehicle discounting and manufacturers focused on producing higher-margin models.
Like-for-like used vehicle volumes accelerated 14%, driven by the successful re-launch of the CarStore.com website in mid-2022.
Pendragon also pointed out its used vehicle gross profit per unit remains ‘well above historic levels’, with the supply of used vehicles expected to remain tight ‘for the foreseeable future’.
Elsewhere in the business, aftersales revenue and profitability both grew ‘considerably’ in the quarter.
And Pinewood, Pendragon’s software whose main product is a cloud-based comprehensive dealer management system which it sells to retailers across the globe, delivered operating profit growth of 14.3% to £3.2 million, fueled by UK and international user growth and increases in the average revenue per user.
WHAT DID THE CEO SAY?
Chief executive Bill Berman said Pendragon’s very strong first quarter performance ‘builds on the momentum we generated last year from the progress with our strategic and operational initiatives.
‘We continued to trade strongly in UK Motor, across both new and used markets, and our performance shows the benefits of the strategy we have been pursuing in recent years. It is really encouraging to see all of the group’s divisions in growth, particularly when considering the ongoing challenges in the external operating environment.’
As Shares outlined in March, Pendragon’s shares plunged in December after largest shareholder Hedin withdrew a takeover offer and more recently, activist investor Palliser has called for a shake-up of the company, although strategic progress clearly continues apace with Berman behind the wheel.
In a significant development, Pendragon will work with Chinese electric vehicle group BYD (1211:HKG) as a UK launch partner in 2023, the first new car maker with which the group has worked in decades.
UPGRADE FROM BERENBERG
Following the update, Berenberg raised its price target from 35p to 36p and reiterated its ‘buy’ recommendation.
‘With Q1 under its belt, as well as encouraging signs of improvement in supply of new vehicles (albeit with continued tightness in used vehicle supply expected), Pendragon now expects to “comfortably outperform” previous expectations,’ said Berenberg.
‘We increase our FY 2023 adjusted PBT estimate to £55 million (from £47 million), but leave outer-year estimates broadly unchanged at this stage.’
