Share watch: Short-term outlook tricky, but survivors should do well

Time 7:06 pm, June 27, 2011

sharesApril was not the best of months… and customers still seem reluctant to part with their cash

The short-term outlook for listed motor retail stocks looks relatively rocky. The majority of the sector will report poor average dealer financial performance in April as a result of the lack of retail sales and the loss of working days due to the Bank Holiday season.

The forecast for the second and third quarter looks little better with the retail customer still reticent to spend money except where their current vehicle no longer functions and the after- effects of the tsunami resulting in reduced vehicle supply for most brands.

screen-shot-2011-06-27-at-095400This slightly cautious outlook was reflected in Vertu’s results announcement last month as they were the first of the listed stocks to query the trading outlook after a strong first quarter.

The stock market appears to be looking through these short-term issues and sees a rosy outlook for a number of the stocks. Bid fever has continued to grab hold of the sector with constant rumours over large deals leading to the continued consolidation of the sector.

The prevailing sentiment appears to be that the outlook for the survivors of the current downturn is very rosy. There is also a bit of momentum building that the sector is undervalued, with the majority of the shares trading at a discount to tangible net assets.

This has led to significant increases in a number of the listed stocks during the course of the last month. The UK’s largest retailer, Pendragon, has seen a 10 per cent rise in share price with a positive management statement for the first quarter.

Again, management placed heavy emphasis on the aftersales and used vehicle performance as they looked to build performance over the year. The Pendragon share price movement through the remainder of the year is likely to contain a balance between trading performance and the market’s assessment as to their likely success in refinancing the business in 2012.

Vertu represented the largest mover over the course of the month gaining 20 per cent. A strong set of results (albeit with a note of caution about 2011) with strengthening results from the acquired dealerships should see confidence increasing in the business with continued share growth. Vertu also has a significant acquisition fund which is likely to produce a steady stream of additions to the company during 2011.

Lookers has maintained the share price boost provided by the bid interest in the company from Jack Petchey despite the fact that it looks like the bid is likely to fail.

One investor (Blackrock) has been building on its stakes in both Vertu and Lookers potentially taking a punt on potential business combinations.

The other significant news this month came from Caffyns who released strong earnings figures. However, given the thinly traded nature of the stock, this is unlikely to significantly move the share price.

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

James Batchelor's avatar

James – or Batch as he’s known – started at Car Dealer in 2010, first as the work experience boy, eventually becoming editor in 2013. He worked for Auto Express as editor-at-large and was the face of Carbuyer’s YouTube reviews. In 2020, he went freelance and now writes for a number of national titles and contributes regularly to Car Dealer. In October 2021 he became Car Dealer's associate editor.

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