Falling sales of new cars, diving values of used cars, a stuffed-up strategy for expansion, a fallout with one of its main partners and no chief executive — none of this adds up to much of a recipe for success for a motor dealer (Robert Lea writes). That shares in Pendragon, once Britain’s largest car retailer, declined by only 10 per cent after shocking half-year results is testament to just how far this stock has fallen.
At 9¾p, the shares are down more than 66 per cent from their spring high. Trading with a market capitalisation of about £140 million, the stock is only one fifth of its value when the car trade was a much happier place back in the middle of the decade.
Pendragon is a victim, like several of its peers, of a change in the market. That is mostly to do with the fall in consumer confidence that began with the result of the referendum to leave the European Union in 2016. It coincided with peak PPI, the high point of payments being made by the banking industry to customers who were mis-sold insurance products, which in many cases went toward a new motor.
That the new car market is now in recession — a fall from peak to present trough of more than 10 per cent — at a time of cheap money and the ease-of-access of PCP plans that spread payments over, typically, three years shows just how the consumer has turned against making big financial commitments.
In used cars, a market in the UK of eight million a year, more than three times that for new registrations, sales, too, are down, but crucially so are prices, by about 7 per cent, further thinning wafer-like margins. It has resulted from a combination of the flooding of the market in prior years and motorists knowing full well that it is a buyers’ market. If that is the rough hand that Pendragon has been dealt, then it has played its cards about as badly as it could.
Pendragon is a 1989 spin-out from the old Williams Holdings conglomerate — a leviathan that launched the careers of those ubiquitous boardroom bruisers Sir Nigel Rudd and Sir Roger Carr. It operates from about 200 outlets and trades as Stratstone for more upmarket brands and Evans Halshaw for volume vehicles. Last year its revenues were £4.6 billion, but, lurching into crisis, it fell to losses of £50 million.
For 30 years, Pendragon has been a bit of a peculiarity in that it was led for all that time by Trevor Finn, until his departure at the end of last year as things began to unravel, pretty much coinciding with the arrival of two activist Swedish investors. Together they built stakes of more than 32 per cent alongside other more conventional London investors, such as Crispin Odey and Jeremy Hosking.
Yesterday’s half-year results shed more light on Pendragon’s woes. The company has dived to a six-month loss of £32 million, during which its underlying revenues have fallen £234 million to £2.2 billion. It admitted the scale of its disastrous move into used car supermarkets, deciding now to close 22 of its 34 Car Store outlets. It detailed the impact of its fallout with Jaguar Land Rover, its longest-running manufacturing partner, as it quit more dealerships.
And, having overseen the appointment and departure of a replacement to Mr Finn who lasted only three months, Chris Chambers, Pendragon’s chairman, a former investment banker, is no longer deemed as knowing what he’s doing running the company. He is being replaced by an American car dealer.
There is an argument that the present share price could be an entry point for brave investors — but that view isn’t shared even by Jefferies, its own stockbroker.
ADVICE Avoid
WHY This is a company stuck in a bad place and which has managed to reverse itself into a wall
Springfield Properties
As a relatively small Scottish focused housebuilder Springfield Properties may have seemed an unlikely candidate for a stock market flotation (Greig Cameron writes).
But its management team had a clear plan when it listed on Aim with a near £90 million valuation almost two years ago. With five large village-style sites, with the potential for thousands of homes, at various stages of planning, it knew capital would be needed to bring those plans to fruition. The £25 million it secured on the listing has been invested with the village sites continuing to move forward. The first families have moved into the most advanced projects near Perth and Dundee.
Alongside that Springfield, which has its headquarters in Elgin, has staged two takeovers, of Dawn Homes and Walker Group, to widen its geographic range to the west and east of Scotland’s central belt.
Annual results indicate the strategy is paying off. Revenue was up 35.6 per cent to £190.8 million amid growth in the numbers of private and affordable houses completed. Pre-tax profit rose 69 per cent to £16.5 million in the 12 months to the end of May while a final dividend of 4.4p is an 18.9 per cent uplift on the previous year.
The company has little interest in expanding south of the border and believes it has huge opportunities to grow in Scotland, where demand remains strong. House prices are ticking upwards in most areas even with more limited government support than in other parts of the UK. The Scottish Help to Buy scheme only covers new build valued at up to £200,000 and involves the Holyrood government taking an equity stake of up to 15 per cent.
But Springfield sees opportunity in affordable homes with the Scottish government targeting 50,000 being built by the end of this Holyrood parliamentary sitting in 2021.
The industry believes affordable homes form part of the political agenda once the dust settles after the next election in less than two years.
Springfield’s shares listed at 106p and reached almost 138p in May last year. A low of 97½p was hit last month but the shares have been trading at about 110p in recent days.
ADVICE Buy
WHY Focused, knows its market well and unfazed by whatever Brexit may bring
