Britain’s biggest motor retailer, Pendragon (PDG), reverses 10.1% to 23.7p after spluttering out a full year profit warning, citing a continuing slump in new car sales in October amid supply disruption caused by new global engine testing rules.

CEO Trevor Finn, one of the sector’s seasoned campaigners, sounded chipper at the half year results in August. He had anticipated an improved second half of the year, but today he also blames accelerated investment in Pendragon’s used car business for an expected 2018 earnings shortfall.


Underlying pre-tax profit guidance for 2018 is being massaged down to £50m. Today’s downgrade leaves Pendragon on track for a 17.2% year-on-year profits decline, underlying profit having fallen by £15m to £60.4m in calendar year 2017.

Nottingham-headquartered Pendragon explains that the introduction of the Worldwide Harmonised Light Vehicle Test Procedure (WLTP), a new emissions, Co2 and fuel economy test that all cars sold in the EU have to undergo and came into effect on 1 September, has created disruption in new car sales and stirred up uncertainty over the UK’s new vehicle supply.

According to the latest data (4 Oct) from The Society of Motor Manufacturers and Traders (SMMT), new car registrations crashed by 20.5% to 338,834 units in September as the regulatory changes dented supply.

In today’s poorly received update, Pendragon says ‘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,’ warns Pendragon, adding ‘this will clearly have an effect on the group.’

‘A little oddly’, in the words of Langton Capital commentator Nick Bubb, Pendragon is also pinning the blame on accelerated investment in its used car operations for its profits flop.

‘As announced at the half year we commenced the roll out of our “used car factories” for the refurbishment of used inventory,’ explains Pendragon. ‘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, says ‘an unscheduled trading update will rarely contain good news, particularly when there is an imminent announcement in the diary already, and so it proves today with the UK’s largest independent car dealer Pendragon which has issued a profit warning.

‘One may fear this is not a blip linked to the new regulations but is also reflective of a downturn in demand for big ticket items amid an uncertain consumer backdrop.

‘Unsurprisingly Pendragon is attempting to pivot to the more resilient used car market. 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.'

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Issue Date: 19 Oct 2018