■ Strong used car volume growth
■ Aftersales margins holding-up
■ New car market still recovering
■ Big revolt against remuneration report
Most headline-writers will focus on the 67 per cent of shareholders who voted against Pendragon's remuneration report today. But they should look beyond the controversy: investment in its used car business helped
Unusually in the industry, the motor retailer has adopted an 'every day low pricing' model for used car sales and, while that meant gross margins there were 90 basis points lower, the additional used car volumes generated - they rose 11.4 per cent on a like-for-like basis - meant retail gross profits climbed by £1.8m. Improving margins in aftersales also offset that pressure - even though aftersales revenues were flat - and mean that Pendragon is well on the road to delivering broker Espirito Santo's pre-tax profits forecast of £38m this year, giving EPS of 2p.
Pendragon benefited from continuing recovery in the new car market, too, which last week saw the industry's trade body, the Society of Motor Manufacturers & Traders, marginally upgrade its full-year forecast for new car registrations to 1.95m units. Pendragon reported a 15.7 per cent increase in new like-for-like volumes, well ahead of the 0.9 per cent market increase.
Forget the hoo-ha about Mike Davies's pay packet. At 14p, Pendragon's shares trade on seven times expected earnings - a lowly rating that reflects nervousness towards the sector and its comparatively high debt. However, strong cash flows and disposals of surplus property are helping it deleverage, and operational gearing means any additional sales volumes are translating into decent profit growth. Buy.
Last IC view: Good value, 10p, 23 Aug 2011