10:39 am, February 20, 2023
The UK’s biggest dealer groups are well placed to navigate any pressures they face in 2023, a new study has found.
Cox Automotive has been looking into the performance of four of the biggest PLC dealer groups in the UK – Vertu Motors, Pendragon, Lookers, and Motorpoint.
The firm’s AutoFocus report painted a complimentary picture of the quartets’ performance during 2022 and found that their share prices actually ‘belies their operational strength’.
Zeus Capital analysed the profit before-tax forecast of the four groups and found that 2022 was largely ‘a year to forget for most investors’.
Share prices stubbornly refused to rise significantly, despite strong financial performances across the board.
That has been put down to a number of factors including rising interest rates and growing levels of economic uncertainty.
However, experts say that in 2023, share prices are set to rise – even if it will be tough to top the financial performances seen in 2022.
‘2022 was a year to forget for most investors as share price performances were typically poor due to the war in Ukraine, accelerating inflation, monetary policy tightening, continued Covid-19 locks in Asia, industrial action and the cost-of-living crisis unfolding,’ said Mike Allen, head of research at Zeus Capital.
‘However, from a UK automotive retail perspective, most PLC groups typically performed well operationally and look likely to hit our FY22 earnings projections, but this was not reflected in share price performance.
‘Overall, it will be tough for PLC groups to exceed their financial performance in FY23 vs FY22 significantly but PLC valuations remain low by historical standards thanks to the current levels of economic uncertainty coupled with rising interest rates.
‘We believe the markets are seeking assurance that inflation and interest rates have peaked, and once that is the case, we would expect markets to reopen and valuations to improve from here.
‘The financial performance across the sector, in general, was healthy coming out of various COVID lockdowns from 2020, and we all knew that the used car price performances of 2021 were never going to last.
‘As a result, we had been careful not to extrapolate the super normal profits generated into 2021 into 2022 and, on average, assumed PLC dealer group adjusted profit before tax forecasts would be 42 per cent below 2021 peak levels on average.
‘Nevertheless, high super normal profits resulted in strong cash generation, leaving most dealers with net cash positions going into 2022.’
‘PLC dealer groups have faced significant challenges before’
Commenting on the findings, Philip Nothard, insight and strategy director at Cox Automotive, said back the four firm’s to deal with any hurdles that come their way in 2023.
He also pointed to the expansion of agency sales and the growth in the EV market as some of the biggest potential changes to happen in the coming months.
‘Looking ahead, the industry in 2023 could face another perfect storm of ongoing supply pressures with deteriorating demand as the cost-of-living crisis and economic recession starts to bite,’ he said.
‘However, the PLC dealer groups have faced significant challenges before and have robust balance sheets and strong management teams that can quickly adapt their businesses in a crisis.
‘Of course, against a challenging backdrop, we will see significant change with the birth of agency and ongoing growth in EV vehicles.
‘2023 will not just be about risks and challenges in our view. We also see opportunity through change, and those most nimble dealers will spot opportunities throughout the supply chain in nearly new, used cars; finance and aftersales will typically triumph.
‘We anticipate that most of the PLC Groups will be in this category and adapt, grow, consolidate, and continue to churn out a respectable financial performance.
‘Perhaps one day, investors will recognise this, and they might get the credit they deserve.’
Main image: Philip Nothard, insight and strategy director at Cox Automotive
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