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Listed companies in ‘bloodbath’

The six UK stock market listed car retail groups are all trading at or close to their 12-month lows, shows the latest European Auto Retail & Services Stockwatch from corporate finance specialist Houlihan Lokey.

It described June as a “bloodbath” which was not restricted to the UK – all 25 stocks that the company monitors in Europe and America fell.

As widely reported in the media, Pendragon’s share price more than halved, as it announced that it was cutting just under 500 staff (around 3.5% of the group total) and that “the profit outlook for the Group is difficult to predict”. It is now hovering around its 12-month low of 13p.

Pendragon’s house brokers Citgroup and Arden have cut their pre-profit forecasts by 20% in mid-June to around £40 million.

According to Philip Wylie, leader of the Automotive team at Houlihan Lokey: “The old adage location, location, location applies not just to houses but to dealer groups across Europe. New car sales in the first five months of 2008 declined by over 7% in Northern Ireland but by less than 1% in the UK and indeed Western Europe, when viewed as a whole.

“At the other end of the spectrum, new car sales in Russia are booming. Many forecasters predict that the Russian new car market could more than double, from 2.4 million units in 2007 to over 5 million units by 2012.

“To put this in perspective, Germany sold less than 3.5 million new cars in 2007.”

Inchcape, whose shares fell by nearly 27% during June to its 12-month low of 319.5p (as at June 30), is the most advanced of the listed groups in the Eastern European markets. Its sales in the Emerging Markets in the first five months – which include the Baltics, China, Poland and Russia - were up by more than 50% versus 2007, on a constant currency basis, due to market growth and recent acquisitions.

Inchcape has 24 sites in Russia, which it only entered in 2006. It expects to add five more sites in 2009, taking annual revenue in the region to £1 billion. This equates to 16% of the Group’s 2007 consolidated revenue.

Inchcape’s UK operations have been outperforming the market, with a 3% rise in sales in the first five months, while pre-tax profit for the Group was up 9% in sterling terms and flat in constant currency.

Lookers, which has over 30 dealerships in Northern Ireland (25% of the group total), is suffering from the impact of an 18% slump in house prices in the region during the first half of 2007.

New car sales in Northern Ireland were down 7.5% in the first five months and 13% in May, versus the previous year, with June expected to be no better. A number of analysts have cut more than 20% off their pre-tax profit forecasts for Lookers.

Tony Bramall continued to buy Lookers shares and spent £685,000 adding to his family stake (21% of the total equity), as the share price wobbled around 70p. A number of the Group’s executive directors also made small personal investments in Lookers shares and a contingent award of just over 2 million shares was made to five directors. This award will only be alloted if the company meets earnings-per-share growth targets.

The story was the same in America where the two groups with UK interests, Sytner owner Penske Automotive, and Group 1, owner of Chandlers, saw shares fall from 20.9 to 14.7USD and 26 to 19.9USD respectively.

Elsewhere, Accident Exchange posted pre-tax profits of £12.1m for the year to the end of April 208 (11% lower than in previous financial year) despite seeing a 41% increase in revenue to £165m. Operating profit margins declined from 16.8% to 15.1% year-on-year but it was financing costs, which more than doubled, which took their toll on the pre-tax profit number.

The group finished the year with a fleet of 4,850 vehicles (20% up on the previous year) and may increase this by 20% if demand requires it but the primary goal is to improve margins.

Just Car Clinics’ shares fell by 17% despite London based Cenkos Fund Managers buying a 17.5% stake in the company. This stake, which was worth just over £1.53m at the end of the month, looks unusual alongside the four directors, who together control 39% of the shares.

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