Pendragon enjoys chunkier margins

Pendragon (PDG) improved profitability across both its used and new car offerings despite a fall in volumes. The car dealer faces headwinds, from supply chain uncertainty to the impact of the cost of living crisis on demand, but looks well-positioned in the sector to drive forwards profits. 

Chief executive Bill Berman said that the company overcame “the market-led reduction in sales volume in both new and used cars and the inflationary cost environment”.

Pricing was helped by the well-documented supply constraints in the car market, with semiconductor shortages still having a significant impact. But thankfully for Pendragon, higher average selling prices offset the volume decline. Gross margin was up by 100 basis points to 13 per cent, with gross profit per unit for used cars up by 23 per cent to £1,676 and for new cars by 59 per cent to £2,576 as used car and new car volumes fell by 15 per cent and 18 per cent respectively. 

Progress was made with aftersales efficiency – aftersales revenue was up by 5 per cent to £137mn and gross margin climbed by 180 basis points to 51 per cent. There were likewise encouraging signs on the software side of the business, with Pinewood revenue up 3 per cent to £12mn, and with online marketplace brand Car Store which now lists over 10,000 cars. This is “more than any of the new entrants to the market”, according to Berman.

Panmure Gordon analysts maintained their 53p target price and buy recommendation on the back of these results. The shares trade at six times the broker’s forward 2023 earnings forecast, which looks undemanding given strategic progress and a strong order book. While we aren’t as bullish as Panmure, the shares certainly have potential – as a £400mn takeover offer from largest shareholder Hedin Mobility, which arrived five days after these results, has underlined. Hold. 

Last IC view: Hold, 19p, 15 Sept 2021