This year has continued to be significantly more stable for the listed motor retail stocks as we move through February with all of the companies priced within 10 per cent of their opening values.
The record 2009 trading performance has been priced into all of the stocks, with the market currently very concerned over fears of a double dip recession and what happens after the scrappage stimulus comes to an end.
In their review of the automotive sector, broker Panmure Gordon provided a positive general outlook, looking past the expected challenges in 2010 to see value for longer term investors. This is based on there being significant pent-up demand in the market when we reach 2011, subject to the manufacturer’s pricing behaviour.
Vertu remained a favoured stock based on their cash resources leaving them in a strong position to consolidate as opportunities arise. This results in Panmure re-iterating their ‘buy’ rating with a target price premium of 50 per cent over current prices.
Inchcape was also given a positive review with a wide geographic spread and cash resources to invest in opportunities as they arise. In spite of this the target price was downgraded to 32 pence providing a potential upside of 30 per cent.
Lookers also maintained its ‘buy’ recommendation on the back of its cost cutting efforts and strong aftersales business, albeit with a reduced target price of 70p. These three stocks are therefore expected to provide significant positive growth and enhanced shareholder value.
Pendragon did not fair as well in the Panmure review, having their rating kept at ‘hold’ and the target price slashed from a 50 per cent premium to their current trading level. Concerns remain regarding the above average levels of debt Pendragon holds.
Over the next month we will enter the 2009 reporting season for some of the listed stocks. Whilse the results are expected to be positive, following on from strong pre-close trading statements, the market priced this in during the Autumn and will pay greater attention to any indication given to 2010 trading forecasts. On the back of the poor results in January, partially as a result of the difficult weather conditions, this could lead to short-term price falls.
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