Pendragon warns of brakes hitting future new car sales

Pendragon, owner of the Evans Halshaw and Stratstone motor dealerships, has become the latest industry major to warn of a slowdown in the new car market.

The group, which operates more than 300 franchises across the UK, yesterday posted a like-for-like increase in used-car sales of 7 per cent in the three months to 30 September, compared to a 23.4 per cent decline in new, non-fleet vehicles in the quarter.

While new car sales were up year-on-year when stripping out the impact of the previous government's scrappage scheme, the company said it expected used car volumes to continue to improve and new car sales to remain subdued.

Motor dealers face a number of headwinds, including weaker consumer confidence, a rise in VAT and soaring fuel costs.

On Thursday, rival Inchcape predicted a challenging market for new car sales next year as it outlined plans to sell off ten sites and cut its workforce by 500.

Nottingham-based Pendragon, which has a string of showrooms in Scotland, many gained following its 2006 acquisition of Reg Vardy, said it was "cautiously optimistic" that it would hit full-year profit expectations. It told investors: "While the wider macro-economic environment remains uncertain, we continue to concentrate on the areas of the business where we have the greatest opportunity to improve profitability and reduce debt."

Excluding scrappage volumes, new car sales would have risen 27.6 per cent, year-on-year, the group noted. Without the scrappage impact, total retail sales were up 30.1 per cent, compared to a market increase of just below 28 per cent.

The company's volume car retailer, Evans Halshaw - which sells brands such as Citren, Vauxhall and Ford from 127 dealerships - saw retail sales excluding scrappage increase 43 per cent.

Its Stratstone dealership, focusing on luxury brands such as Ferrari, BMW and Aston Martin, saw an increase in retail sales excluding scrappage of 1.4 per cent.

The group said aftersales - such as vehicle servicing - continued to be the most profitable area, although overall gross profit did fall in the quarter.

Sanjay Vidyarthi, an analyst at brokerage Execution Noble, said: "Pendragon has had a strong Q3, outperforming the market in used and new car sales. We think our full-year 2010 profit before tax estimate of 24 million is well under-pinned.

"Although 2011 is set to be a difficult year, Pendragon is well positioned to drive growth through taking market share in the higher margin categories of used cars and aftersales."

The broker yesterday maintained its "buy" recommendation on the shares, noting: "We think that a calendar 2011 [estimated] P/E of just 7.2x, compared with Lookers on 8.5x and Inchcape on 10.9x looks harsh."

Earlier this week, listed rival Vertu Motors said it was gearing up for 1 billion of annual sales after a 27 per cent surge in first-half revenues.

The group, which ranks as Britain's eighth largest motor retailer with 74 outlets, also played down fears of a sales reversal following the comprehensive spending review and January's VAT hike.

As well as the double-digit rise in interim sales, to 511.1m from 401.3m a year earlier, adjusted profit before tax rose 24 per cent to 5.2m. The group plans to pay a maiden dividend of 0.2p per share in January.