6:04 pm, November 18, 2010
It has certainly been a turbulent 12 months for the majority of the share prices of the UK’s listed motor retailers. A large number of the businesses entered 2009 with significant concern over their covenant compliance and the reaction of the banks to breaches to those covenants.
All of the businesses suffered from a significant risk discount massively reducing the market capitalisation of the sector. In the spring a number of positive pieces of news coincided to provide a much-needed favourable boost.
The worries over potential business insolvencies were calmed by renegotiation of banking facilities, albeit with some hefty interest coupons.
Trading results for the first quarter were positive reflecting a significant improvement in the used car market producing a shortage of saleable stock and monthly price rises which coupled with the cost reduction programmes introduced in 2008 to deliver greater profits.
The introduction of the scrappage scheme was also met with considerable cheer and boosted footfall, sales and market sentiment, albeit with a smaller positive impact on profit.
This all led to significant price gains through the summer for all except for HR Owen and Caffyns. The remaining listed businesses also chose this time to approach the stock market for additional share capital to pay down expensive debt or, in the case of Vertu, to build an acquisition warchest.
The last quarter has seen share price falls for the majority. This is principally down to concerns over 2010 trading, be it the end of scrappage, the increase in VAT, the new showroom tax or the longer term effects of decreased volumes on profitability.
Trading has certainly taken a downturn in the latter part of 2009 for all except a few brands who are still benefiting heavily from scrappage and this is likely to continue into the new year.
The outlook for 2010 should be more settled for the stock market valuations. The sector has not seen the dramatic falls recognised at the end of 2008 and, in the longer term, some of the shares still appear good value with the market capitalisations at a discount to net assets excluding goodwill.
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