Positive financial results bring little share price momentum, explains ASE’s Mike Jones

Over the past month we have had the confirmation of strong trading results from the majority of the quoted motor retail companies.

This has, however, had little impact on their relative share prices with no clear momentum in valuation movements. This underlies the overall picture, where the market is adopting a ‘wait and see’ mentality as to how each business is going to fare with the predicted lower volumes of new vehicle sales during 2011 and into 2012.

The market has also been digesting the implication of wider news stories, particularly with regard to the effect that the Japanese tsunami will have on new vehicle availability during 2011. This could well slow already lengthy lead-times, hampering the efforts of motor retail businesses to hit new vehicle targets.

During March, Lookers announced a strong set of results as expected, delivering record pre-tax profits. Once again the performance of the after- sales business was stressed during the public announcements with the strong implication that, as 60 per cent of the profits are generated in the aftermarket, the company will be well placed to ride out the drop in new vehicle sales. In addition Lookers announced the acquisition of Get Motoring, a short-term leasing business, again emphasising the diversification away from new retail sales. Despite the positive results and the acquisition, the share price has dropped steadily during March.

Another share which has given up its early 2011 gains is Inchcape. With the UK and Western Europe only contributing a third of the company’s income, unlike other UK listed retailers, the share price is much more dependent on international sentiment.

As a result of the tsunami, Inchcape shares dropped 10 per cent, reflecting the market’s assessment of the company’s exposure to Japanese brands. This overshadowed any assessment of Inchcape’s expansion into China following a series of successful pilots.

HR Owen announced a return to operating profit and a continued restructuring of their business with the decision to part company with Alfa Romeo and the opening of a Ferrari boutique.

The shares bounced back 10 per cent to their 2011 opening position – however, there is little real momentum in the price. It will be interesting to see whether the impending group strategic review of operations, which may well be announced at the company’s AGM in May, will produce a shift in market sentiment.

Pendragon has remained largely steady during the past month. Interestingly, the share price has managed to hold on to the gains made following the acquisition rumours during February. Pendragon remains highly dependent on new vehicle sales, although used vehicle operations have been opened under the Quicks brand at some of the company’s empty retail sites.

There has been little movement in Vertu, Cambria or Caffyns during the month.

There is unlikely to be any real momentum in the share prices of the listed retailers until it becomes clearer how profits are holding up during 2011.

Who is Mike Jones?

He’s executive chairman of ASE Global. If you want to talk to him about his column call 0161 493 1930. You can read more of Mike Jones’ columns here