Inchcape bounces back from pandemic low

Inchcape (INCH) had a tricky 2020 when a combination of a slowing distribution business and a £198m impairment charge resulted in a hefty reported loss. But in the first half of this year proved far more promising, with revenue jumping up 37 per cent on an organic basis and underlying profit before tax up to £143m, compared to £9m this time last year.

Its focus on the distribution portion of the business is starting to pay off, with organic revenue growth in that section up 78 per cent compared to the wider 37 per cent growth of the group. Given that the operating margins in distribution is higher than the rest of the business, it seems like a savvy strategy.

The Q2 comparators, when the pandemic weighed most heavily on the business are particularly strong. On an organic basis, revenue was up 99 per cent compared to just a 2 per cent increase in Q1. Inchcape's sales have basically just returned to their pre-pandemic levels, but the successful implementation of a cost restructuring program has aided its profit growth. Management was targeting £90m of savings through the program and by the looks of its margin, up to 4.1 per cent from 0.9 per cent, it appears to have almost made it.

This decent performance has contributed to Inchcape increasing its full-year pre-tax profit forecast to “at least £260m”. Analysts are expecting growth beyond the end of the year, with FactSet broker consensus giving adjusted EPS of 54.8p for FY 2022 up from 46p in 2021. Hold.

Last IC view: Hold, 563p, 27 Feb 2020