Car dealer’s shares tumble on profit warning

Franchised car dealership Pendragon had £30m knocked off its market value after investors changed lanes following a profit warning.

Its shares closed down 8% – have fallen more than 20% on Friday morning – after the Nottingham-based group revealed it now expects its underlying pre-tax profit to only be £50m, a drop of 17% from 2017’s £60.4m.

Its problems are being driven by fears a newly introduced global engine testing regulations will cause future market instability.

Pendragon said: “The introduction of Worldwide Harmonised Light Vehicle Test Procedure (WLTP) has created disruption in new car sales and uncertainty over new vehicle supply.

“UK new car market data for the month of September showed a decline of 20% in new car registrations and a similar trend has continued in October demonstrating the impact of WLTP.

“This has caused significant new vehicle supply disruption which gives us cause for concern over the coming months for new vehicle sales and profitability. This will clearly have an effect on the group.”

Pendragon said that during the year it has continued to invest in its used car business in new start up locations and transformation costs.

“As announced at the half year we commenced the roll out of our ‘used car factories’ for the refurbishment of used inventory. This accelerated investment is being made in spite of the short term dilutive effect and the significant costs incurred, latest data gives us encouragement for the future growth of this part of the business.”

Russ Mould, investment director at AJ Bell, was not too downbeat about Pendragon’s prospects.

He said: “While today’s warning might have been expected to provoke a period of retrenchment, it is spending money on new sites as well as putting cash into so-called used car factories to refurbish old inventory.

“These actions are to be applauded as it shows the business has an eye on the longer-term prize rather than hiding amid short-term pressures. Management are ultimately being proactive in response to problems which are not of their own making but instead affecting the whole industry.”