Shares in motor retailer Pendragon (PDG) reversed 9.8% to a paltry 9.85p on first half results revealing an alarmingly larger lurch into the red than most anticipated.

Given its hard-pressed finances, management axed the half year dividend and guided to a full year loss at the bottom of the consensus range, putting another dent in an increasingly clapped-out valuation.


The embattled car retailer, best known for its Evans Halshaw and Stratstone businesses, is an exemplar of the risks that come with investing in companies with high operational and financial gearing.

Amid a brutal time for the motor retail industry - heightened political and Brexit uncertainty, frail consumer confidence and weak sterling are just a few of the issues the key players are grappling with - Pendragon posted an underlying loss of £32.2m for the six months to June.

This marked a swing from a £28.4m pre-tax profit a year earlier and was also wider than the £22.8m and £25m forecast by analysts at Liberum Capital and Berenberg respectively.

Having shelled out a 0.8p interim dividend a year ago, Pendragon has decided not to pay a half time payment to shareholders this time around.

Liberum is sticking with its ‘sell’ rating following the dire results, which reflect continuing new car market weakness, but mainly the cost of clearing legacy used car stock.

Pendragon’s balance sheet is hardly pristine either. The Nottingham-headquartered company closed the half carrying net debt of £104.3m, albeit down 17.3% from the £126.1m reported at the previous year-end thanks to a VAT timing benefit and used car stock clearance inflows and with scope to benefit from US disposal proceeds.


Following the departure of chief executive officer (CEO) Mark Herbert in June after just 3 months in the hot seat, chairman Chris Chambers is stepping down on 1 October. Non-executive director Bill Berman will take on the interim role of executive chairman.

‘This looks like a high calibre appointment, but management flux in the current environment is clearly unhelpful’, said Liberum. ‘While the second half may be more stable with used car stock under control, high operational and financial gearing in a tough trading environment leave the risks firmly to the downside.’


In the outlook statement, Pendragon warned: ‘As a result of these market conditions, group underlying loss before tax for full year 2019 is now expected to be at the bottom of the board’s expectations’.

This implies a £12m loss versus pre-tax profits of £47.8m in 2018, so a real downturn in the fortunes of Pendragon, which added the caveat. ‘This outcome still reflects a meaningful recovery in profitability during the second half based upon self-help actions that the business is taking as well as the assumption that current market conditions do not deteriorate further.’

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Issue Date: 18 Sep 2019