Car dealer Pendragon (PDG) accelerates 3.9% higher to 40p on Monday, as a strong third quarter update triggers forecast upgrades. In common with quoted peers, the £554 million cap is benefiting from buoyant new car market conditions and a revival in aftersales.

Web chart - Pendragon - Oct 2013

In today's upbeat trading missive, covering the third quarter to 30 September, Nottingham-based Pendragon pleases with news full-year figures should speed in 'materially ahead of expectations'. The fully-listed firm flags like-for-like gross profits up 6.4%, with profits ahead in new and used cars as well as aftersales including car servicing, maintenance and repair.


Pendragon's aftersales are in growth mode, reflecting an increase in the national parc of vehicles under three years old after a period of decline. This is being driven by the strength of new car registrations in the UK, where Pendragon reports 15.6% growth in overall new car volume for the nine months to end September, ahead of an 11.1% increase for the total car market.


Operating outlets under the Stratstone franchise for luxury brands and the Evans Halshaw franchise for volume brands, Pendragon is also taking market share in a stable used car market. Here, its strong internet offering is providing a helping hand, with Pendragon reporting a 23.5% rise in online website visits over the first nine months of the year.


Chief executive officer Trevor Finn, a seasoned motor retailer, also highlights the strength of the company's balance sheet, rehabilitated by a recent refinancing, with year-end net debt now forecast at a better-than-expected £146.2 million.


Pendragon's bullish update chimes with exceptionally positive newsflow from rival groups Lookers (LOOK), a running Shares Play of the Week as well as the acquisitive Vertu Motors (VTU:AIM), which recently (16 Oct) motored in with stellar half-year figures. Economic weakness and uncertainties in mainland Europe are benefiting the UK market, as manufacturers directing their attentions to the UK, where confidence is increasing slowly but surely. Vehicle manufacturers are also offering UK consumers highly affordable financing deals which means cars can be sold at competitive monthly rates without knocking down headline prices for the quoted UK dealerships.


Following today's update, Panmure Gordon upgrades its 2013 taxable profits forecast by 9.4% to £44 million and its earnings per share estimate by 10% to 2.3p, while its 2014 estimates rise 3% to £48.3 million and 2.5p respectively. The broker writes: 'Our target price increases from 28p to 35p, and equates to 14x 2014E EPS but following a strong share price performance of late, the shares remain in Hold territory for now.'


Jefferies reiterates its 'buy' rating on Pendragon and raises its price target from 40p to 47p. In its note this morning, the broker argues balance sheet concerns should now be abating and writes 'with two months until the end of the year and visibility over 80% of new car sales, this is the confident update that we had hoped for.'

Issue Date: 28 Oct 2013