Rumours helped to raise Pendragon’s price and spirits says ASE’s Mike Jones
The newswires for motor retailers over the past month have been dominated by the UK motor industry’s largest retailer, Pendragon. In the middle of February rumours broke of a potential takeover of Pendragon by Lookers.
At this point in time the share price was languishing at 18p having given up most of the gains made during December and looking like heading downwards once more. Immediately as the story broke the price shot up 5p providing a healthy return for anyone who picked up on the rumour and returning the stock to a price close to that of 12 months ago.
After the initial flurry of activity the rumour has not gained any traction, with most commentators regarding the potential of any wholesale takeover as unlikely. Lookers has worked hard to differentiate itself in the eyes of the market through emphasis on the strength of its aftersales business and has seen how Pendragon got itself into difficulty through merely trying to grow.
The likelihood of someone coming along and purchasing the whole of Pendragon remains remote as a result of its size, complexity and debt burden. With changes to block exemption on the horizon a tie-up between two of the UK’s largest players would be unlikely to be welcomed by the manufacturers and importers. What looks significantly more likely is a continuation of the current pattern of dealership sales, with the potential for one or two of the signifificant car sales divisions being sold off.
‘It has been a quiet month on the acquisition front among the listed stocks’
Following hot on the heels of the takeover rumour was the announcement of the full year results for Pendragon. While the headline figures were positive (certainly in comparison to the previous year) it will be interesting to see how they compare to the Lookers results which were announced on March 9.
In spite of Pendragon continuing its policy of selling sites the debt burden actually increased during the year leaving the business still highly geared. Company management put this down to an increase in new and used vehicle stocks. However there remains a general concern over the level of debt on the balance sheet and the prospects for a successful refinancing in the future.
Looking behind the numbers of the Pendragon announcement it was interesting to see the words emulating the focus that Lookers has been bringing to its press releases for a number of years. Significant emphasis was placed on the profifitability gained from used vehicle sales and aftersales alongside details of a number of continued growth initiatives in these areas. This marks a significant change as the listed retailers seek to convince the market that they can continue to prosper even in a declining new vehicle market.
For the remaining listed stocks it was a relatively quiet month with the majority of shares within a whisker of their opening price for the year, awaiting the announcement of full-year earnings. It has also been a quiet month on the acquisition front among the listed stocks.
It is unlikely that we will see any significant movement in share prices until the market gains an indication of profifitability for the first quarter of 2011. While the registration statistics will no doubt show falls in comparison to 2010 if the listed operators can post enhanced earnings through concentrating on their major profit streams then prices may rise as people view the businesses perfectly placed to capitalise on the country’s emergence from the current recession.
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