Bottom Line: Good timing at Pendragon

Click to follow
FULL marks for timing to Pendragon, the motor dealer spun off from Williams Holdings in 1989. Accompanying full-year figures with a pounds 16.6m rights issue, its second in two years, might look a mite cheeky. Not least because earnings per share are bumping along the bottom while the share price, at its highest ever of 284p, is looking quite a few miles down the road to recovery.

Opportunistic certainly, but the bald figures - pre-tax profits rose 11 per cent to pounds 5.2m on sales 28 per cent better at pounds 215m - offer only a grudging acknowledgement of Pendragon's strong position at the bottom of the motor industry cycle. The 6.6p dividend is up a tenth.

True, earnings of 12.2p a share only just beat 1991's 12.1p and are down on the previous two years' 15.1p and 14.5p. But in the context of new car registrations down from 2.3 million to 1.6 million over the same period, and in the teeth of a slump in used car values during the second half, that is impressive and far better than its peers.

The key to that resilience has been an aggressive expansion throughout the recession, which has seen the number of franchises Pendragon operates jump from 19 three years ago to 50 now. The company used to be solely a luxury car dealer. Now there is a much healthier spread of makes, including all the Japanese, and in order to supply the contract hire operation both Ford and Vauxhall dealerships will be added this year.

That will give the group a wide base from which to enjoy the expected upsurge in demand. New car sales are up about a tenth so far this year, with cars bought in the boom long overdue for replacement.

Margins, too, are at long last taking a turn for the better now that manufacturers have got a more realistic grip on likely demand. With less oversupply, Pendragon's existing franchises lifted profits by 39 per cent last year even before the benefit of acquisitions.

Importantly, as working capital demands rise, small dealers are likely to come under increasing pressure from their banks. Because of that, this year should be a fruitful time to grow, before profits and so the asking price for businesses start to motor.

With gearing at 27 per cent, the cash for that continued growth has to come from shareholders. The ex-rights price of 274p,

19 times this year's expected earnings per share, is not cheap but it looks justifiable. Take up the rights.