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Trading statement likely after fall in Pendragon stock

Pendragon was last week expected to issue a trading statement after its share price plunged from around 31p to 21p within a fortnight.

The group's share price has been in free fall since early May this year, with shares valued at 14.5p this morning, giving it a market capitalisation of £95.12m.

The share prices of Inchcape and Lookers have also dropped amid gloomy industry estimates of lower new car sales in the second half of 2008.

Quoted companies are not obliged to issue half-year statements on their expectations, but some do in an attempt to stabilise their position.

Because it is by far the biggest UK motor retailer, Pendragon attracts much attention, especially after its string of profit warnings last year. Financial analysts are divided over the prospects for chief executive Trevor Finn’s group.

Mike Allen, of Panmure Gordon, said: “Things are tough for Finn, and are going to get tougher, but I don’t think Pendragon will go bust.

“I believe Pendragon will still be the UK market leader in eight to 10 years’ time. But the group is under pressure to reduce its gearing, and I believe it is closing sites and making redundancies. “Pendragon did its big sale and leaseback deal at the wrong time. That was at the top of the market, and now it has to pay rent on its dealerships when sales are falling.”

Allen said despite these problems, Pendragon was still the market leader and it was important to many manufacturers that it stayed in business. Pendragon sites accounted for close to a fifth of Jaguar sales in the UK.

He said that because of its size, Pendragon was viewed by the market as being something like a financial institution, which was why its share price was suffering along with those of banks. Allen expected Pendragon to say at the end of the month that it was trading in line with expectations. “That is true because its share value has been downgraded.”

Michael Vassallo, of Brewin Dolphin, said: “Pendragon’s main problem is that it has had too many dealerships since the Reg Vardy acquisition.

“Its profits now are lower than Vardy’s in 2005.”

Vassallo thought there was a possibility that an overseas group might try to buy Pendragon or that there could be an attempt to break it up.

“Pendragon has had real difficulties recruiting the managers it needs,” he said. “On top of that,pe the group has lost many former Vardy managers to Robert Forrester’s Vertu.” Tim Richmond, of Arden Partners, said: “Pendragon’s share price is weak but Inchcape’s and Lookers’ prices are also down. “The whole sector is under pressure because of the effect of economic prospects on big-ticket items.”

Richmond said hedge funds were getting involved in the large motor retail groups, which was adding to the volatility of share prices.

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