PENDRAGON has to produce a clear strategy to reassure potential investors and the wider industry.
That’s the view of Mike Jones, chairman of dealer profitability specialist ASE Global, after yesterday’s Sunday Times published a piece detailing the group’s woes and warning people to avoid its shares.
The troubled motor retailer – whose brands include Evans Halshaw and Stratstone – has predicted a major half-year loss when it releases its half-year results on September 18 and is suffering a serious drop in its share price. It is also currently without a chief executive after Trevor Finn’s replacement, Mark Herbert, quit suddenly in June after less than three months in the role.
However, despite the widening losses in its Car Store vehicle supermarket arm, which are expected to reach £25m, high levels of used car stocks left to shift, one-off costs to its bottom line and the impact of price cuts to boost new motor sales, it said it was set to return to profit in its second half, adding that a turnaround plan would be outlined in detail alongside the results next month.
Pendragon has seen its share price halved since the beginning of the year – it was 10.26p at the time of publication – and the Sunday Times’ advice to potential investors was to steer clear of it, despite many making a killing a few years ago after taking the plunge with a 10p-per-share cash call that it made to lower its debts then of £300m.
Jones told Car Dealer Magazine today: ‘With anything, if you’re looking to invest as a shareholder in a business you’d want to know what the strategic direction of the business is.
‘Anyone can have a tough time at any particular time, but you want confidence in the leadership team and the management of the business that it can be turned around, and you want to know what their strategy is, and you can either buy into it or not. They haven’t got that at the moment. There was clearly a disagreement between the chief executive and the chairman on strategy.’
He added: ‘The share prices across the board have been knocked by the current trading performance, the current registration levels and also the FSA investigation into Lookers, so it doesn’t surprise me that they’re down, but for any listed business I think a shareholder would want to know what the strategy is. And the query now would be who is providing the strategic update, because there’s no chief executive – they’ve not announced one yet.’
Last year’s Pendragon interims came out on August 7 – when it reported a pre-tax profit drop by more than 40 per cent – and there had been speculation that this year’s delay was further evidence of boardroom troubles, but a source close to Pendragon told Car Dealer that there was nothing untoward about it and it was quite usual when there was a change of management.
Jones said that any calculations shouldn’t have held up the results. ‘I think it’s more likely to have been held up by the strategic review and what the heck they’re doing with everything. While the news might not necessarily be good and it might result in a potentially significant liability, everybody is sort of expecting it and also everybody knows that it’s paid over a period of time; it’s not a cheque that they have to write tomorrow.’
He added: ‘We need to remember that there are plenty of car dealers or business owners in the UK who’ve made some money out of Pendragon when they were back being a penny stock and making a significant return on that.
‘But for me, I just need to know what the strategic direction is and how they are going to turn around the performance of the business – who’s leading the business and what’s the plan? That will then give us an idea as to how robust that is. We also need to see some cohesive strategy between the chairman and [whoever becomes] the chief executive and the leadership team.
‘Clearly, for the wider industry it would actually be helpful if Pendragon’s performance improved and that we didn’t have all the negatives put out, such as in the Sunday Times’ piece. I’m not seeing it as bad as that picture was painted. There are still people making some significant returns and there are still some good levels of profit being made. The industry does very well out of having a variety of different income streams.
‘Pendragon’s a big public face and it will be better for the entire industry as their performance improves and they get a cohesive plan together.’