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Inchcape initiates new £100m buyback

Omnichannel capability is steadily improving
February 24, 2022
  • ROCE up on 2019 rate
  • Shortages underpin margins

Inchcape (INCH) was back in the black in 2021, although comparisons to the prior year are largely meaningless given the unprecedented disruption to business in the second half of 2020. Strip out currency effects and portfolio changes, and revenues were 3 per cent adrift of the pre-pandemic level. Luckily, margins were underpinned by vehicle supply shortages, and there is reason to think that these may persist through 2022 even though the global shortage of semiconductors appears to be easing.

The auto dealer and distributor booked £101m in exceptional charges through the period, due in large part to a loss incurred on the disposal of part of its retail operations in Russia, although that probably looks a canny move given current events. Net acquisitions and disposals amounted to an inflow of £56mn through the period, while cash conversion again trumped the long-term average, feeding through to free cash flow of £289mn and the initiation of a new £100mn share buyback programme.

It’s quite possible that the pandemic could lead to permanent changes in the way that consumers source automobiles. Inchcape has accelerated the roll-out of its omnichannel capability, and the platform is recording improved conversion rates. It will be instructive to note how rapidly volumes expand in this space.

A forward trading multiple of 13 times forecast consensus earnings isn’t prohibitive, especially given that the return on capital employed came in at 30 per cent, compared with 22 per cent in 2019. However, inflationary pressures are gathering, which could conceivably reduce discretionary incomes and increase the cost of credit. A largely creditable performance, but macro-effects could stifle demand. Hold.

Last IC View: Hold, 867p, 29 Jul 2021

INCHCAPE (INCH)   
ORD PRICE:765pMARKET VALUE:£2.92bn
TOUCH:764-765p12-MONTH HIGH:941pLOW: 679p
DIVIDEND YIELD:2.9%PE RATIO:26
NET ASSET VALUE:291p*NET CASH:£55mn
Year to 31 DecTurnover (£bn)Pre-tax profit (£mn)Earnings per share (p)Dividend per share (p)
20178.9536964.326.8
20189.281137.8026.8
20199.3840279.026.8
20206.84-130-36.06.9
20217.6419530.022.5
% change+12--+226
Ex-div:12 May   
Payment:21 Jun   
*Includes intangible assets of £394m, or 103p a share