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Stock market: Russian market has its appeal

For riches beyond the dreams of avarice a car retailer need turn his gaze no further than Moscow.

Ninety per cent of a dealer’s profit there derives from new cars. Average operating margins are between four and five per cent. The annual demand growth chart looks like the flight path of a Harrier jump jet.

Next year the car market in Russia will be bigger than the UK and will reach three million in 2010, double what it was in 2005.

And there’s more to come. Household consumption is up 11% year on year. Forty per cent of households aspire to a car, second only to purchase of an apartment. But apartments are not affordable, while a car is.

Stockwatch recommends its readers to make an investment in the country at once. However, being mindful of the pressures of keeping the home fires burning we have selected a proxy. Or at least we can report that Merrill Lynch has done so.

Buy Inchcape shares, says its latest investment note published after its analyst took a trip out to Russia.

Whilst conceding that Russia is just a part of the 10% that is Inchcape’s total exposure to the world’s emerging markets, Merrill reckons that Inchcape is going to grow its holdings in Russia fast. Growing its share fast in a fast-growing market should allow it to double its returns there within a couple of years.

Consumer trends run in Inchcape’s favour. Russians, like so many of the world’s new consumers, don’t want to buy the stuff that their compatriots build. Inchcape is peddling its far more worthy Toyota and Lexus cars, as well as Audi and Peugeot. The £80m Inchcape has spent getting a foothold has made it the biggest M&A player in the Russian sector.

But wait. Just before you contact your broker, get this: Inchcape’s revenues from Western Europe and the UK are 67% of the group’s total and Singapore, which always used to produce a quarter of Inchcape group EBIT, has decided to severely curtail the issue of car entitlement certificates.

Hmmm. Oh well. There’s always that prospect of a Yaris sale in Smethwick to chase up.

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