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Pendragon profits take a downturn

Pendragon is predicting a £20m hit on its profitability this year, and a further £10m hit in 2008. It blames a downturn in consumer spending and over-supply in the new car market.

Following the announcement on Monday, its shares dropped by 17% in early trading, to barely above its 52-week low of 80p. The news also knocked investors’ confidence in rival dealer group Lookers, whose shares dropped 7%, although analysts believe it does not face the same pressure as Pendragon.

Mike Allen, analyst at Panmure Gordon, said: “Pendragon is struggling with the integration of Reg Vardy. No-one says the market is easy, but it’s harsh in comparison to Lookers and Inchcape, which have been fairly upbeat. I don’t think what Pendragon is saying tells the full story. It is rationalising its estate at the moment and people are aware of this.”

Pendragon said consumers had been shaken by interest rate rises and carmakers continue to flood the new car market, leading to price cuts which impact on used car sales.

Its operating margin has reduced by £50 per unit, and sales volumes of new and used are expected to be down 4%. As a result, Pendragon’s 2007 operating profit forecast is £20m lower than the £75m previously expected, and 2008’s is likely to be £10m down.

“The effect of manufacturers protecting volumes in the new car market is that consumers switch from used cars as they see greater value in new cars,” said the company.

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