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Car retail shares decline in July

July saw more serious declines in UK automotive retail businesses share prices, according to the latest Stockwatch from corporate finance specialist Houlihan Lokey.

Only two of the 25 stocks Houlihan Lokey monitor posted a positive movement in July.

Caffyns came under attack for a “dire” track record, from Cyprus-based activist shareholder Mark Bruce-Smith, who controls 4.65% of the group’s equity.

He believes that because the Caffyns family control over 55% of the voting rights -via voting preference shares (which account for less than 7.5% of the share capital) and a holding of just over 15% of the ordinary shares -potential bidders have been scared off.

Philip Wylie, Houlihan Lokey director, said: “Admittedly, Caffyns financial performance has been uninspiring, however, the business is not trading at a substantial discount to many of its listed UK peers.

“As a result, while Bruce-Smith’s share stake is worth approaching £750,000, in the current environment his upside might be rather limited.”

Inchcape saw its share price fall by over 21% in July, taking the fall since the beginning of June to over 40%.

Brokers disagree on the outlook, Citigroup recommending the shares at the end of July, while analysts at SocieteGenerale expect the share price to continue declining.

Despite sales and profits being up by 5.1% and 4.4% respectively in the first half of 2008, flattered by positive currency movements, Inchcape management believes that deteriorating economic conditions, in a number of its markets (not just the UK), will mean that profits for the year are likely to be flat versus 2007.

Wylie said: “The fact Inchcape is retaining its Land Rover and Jaguar retail centres in the UK, now that Tata has taken control, does not really help in the short term.”

These activities include around 20 franchises and are believed to account for approaching 20% of Inchcape’s UK retail revenue.

“A key task for Inchcape, over the next 12-18 months, is likely to be the integration of its acquisitions in Russia and the Baltics. It is also looking at other emerging markets for opportunities but these potential moves will take time to research,” said Wylie.

Lookers shares were knocked back as brokers forecast reductions and general retail sector gloom engulfed the stockmarket. The only news was that interim results will be released at the end of August.

Having seen the Pendragon share price more than halve in June, it nose-dived again in July.

News that the group’s property joint venture with property fund manager aAIM, which has debt of £330m supplied by Royal Bank of Scotland, had breached covenants and was being asked to inject £20m, did not go down well.

Wylie said: “aAIM has attracted high profile investors from the world of football (such as Sir Alex Ferguson) and the media (Sir David Frost is chairman of its advisory board). Perhaps this development will be a catalyst for some more aggressive restructuring at Pendragon.”

Vertu Motor’s shares slid sharply during July. A positive AGM statement, which highlighted double digit like-for-like new retail and used car volumes in the four months to the end of June also had little impact.

  • Click on the next page for Houlihan Lokey’s analysis of the UK automotive service sector. #AM_ART_SPLIT# In the UK automotive service sector, Helphire shares took a hammering in July, losing nearly 46% of their value.

    News that the founder, Mark Jackson, has signalled his intention to retire at the age of 50, following on from news in April that the finance director was being replaced, clearly did not go down well.

    A share placement at 110p, raising £45m, was announced early in July. While the company indicated that the placement price was ahead of its closing level the day before the placement, the reality is that the shares lost over a third of their value in the week leading up to the announcement. Cynical private investors may question whether the placement news was in the market before it was announced.

    Rival accident management group Accident Exchange, which issued £50m worth of convertible loan notes in January, saw its share price fall by nearly 25% during July, although the early trend was softened by positive comments from broker Landsbanki.

    Good news on the UK share price front was the preserve of Halfords. It defied the gloom on the high street by announcing better than expected first quarter results (to the end of June 27), although like-for-like sales growth was just 0.2%.

    The group has spent just over £9m buying back its own shares during the quarter, at an average price of 280 pence. In a brave move, Halfords has launched an online service which allows customers to post reviews on its products on its web site. The service also allows customers to ask questions about products and services, which Halfords and its customers can answer.

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