Pendragon (PDG)


Have Pendragon shares turned the corner?

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Have Pendragon shares turned the corner?

As chief executive of car showroom business Pendragon (PDG) since 1989, Trevor Finn has seen his fair share of industry ups and downs over the years.

That's why when he purchased £445,000 worth of shares in his own company the day after a profits warning in October it was sufficient to trigger a 12% rally in Pendragon's share price.

So far, Finn is keeping to the pledge made at the time of the share purchase that profits growth will return in 2018. Today, Pendragon offered some reassurance on that front by reporting a recovery in fourth quarter trading as margins for new and used vehicles returned to more seasonal levels.

This followed a challenging previous three months in which UK market car registrations were down by 8.9% and there was a knock-on impact for the price of used vehicles.

Pendragon, which trades as Evans Halshaw and Stratstone, said its predicament was not helped at the time by certain manufacturers continuing to force vehicles into the market despite the softer demand.

Shares fell as low as 21.2p on the back of the October profits warning, but were up 13% to 23.6p on the back of today's figures. Finn made his purchase at 22p, with shares trading at 37p as recently as last May.

The impact of the third quarter trading slump meant annual profits dived by £15 million to £60.4 million, driven by a 4.9% drop in like-for-like revenues in new car sales.

This was more than offset by a rise of 15.3% in used car sales, even though the market as a whole fell by 1.6%. The company remains on track to meet its target of doubling revenues in this segment in the five years to 2021.

The company also benefits from the resilience of its aftersales business, which is the group's largest profit contributor and increased like-for-like revenues by 6.9% in 2017.

Looking ahead, Pendragon broadly agrees with industry forecasts that new car registrations will fall by 6% this year and by 2% in 2019. However it believes that the UK market for used vehicle sales and the aftersales opportunity will continue to grow.

Despite the uncertain trading conditions, Pendragon restarted its share buy-back programme in December on the back of strong levels of cash generation.

The group also intends to maintain a progressive dividend after increasing its full year dividend to 1.55p per share. This is 6.9% higher than a year ago.

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