Car trade is still slow for Evans:The Investment Column

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The Independent Online
Evans Halshaw was one of the leading companies in the motor distribution sector until the wheels came off a couple of years back. A rights issue to fund an ambitious expansion just before a slump in the volume car market and the retirement due to illness of former chief executive Geoff Dale have cast a shadow over the shares, which peaked at 540p in March 1994 and have skidded more or less ever since to yesterday's 304p, down 6p on unexceptional interim figures.

There were few surprises in the half-year results, which showed pre-tax profits of pounds 7.3m, down from pounds 8.2m in the first half of 1995, mainly thanks to an one-off contract-hire profit in the previous period. Earnings per share slid from 17.1p to 15.2p and the cautious outlook was given substance by an unchanged interim payout of 5.5p, slightly less than analysts had hoped for.

Although the new car market increased by 5.1 per cent in the six months to June, most of the growth came from small manufacturers and specialist marques, taking market share from Rover, Vauxhall and Ford, which account for 60 per cent of Evans Halshaw's sales.

Despite the difficult trading conditions, Evans is at a very interesting stage of its development, with new chief executive Alan Smith putting the finishing touches to a strategic review which he hopes to publish in October, along with an estimate of the exceptional charge that will be taken against full-year figures to fund the upheaval.

An outsider to the car industry, Mr Smith is a retailer with considerable experience gleaned from spells at B&Q, Superdrug and Boddingtons before its takeover by Greenalls. His fresh eye has already convinced him that motor dealers have been left way behind by the rest of British retailing in terms of service and professionalism and he has ambitious plans to shake up his corner of the industry. If he is successful, there is no reason why Evans should not return to the forefront of the business.

Whether it is a business worth being at the forefront of is a moot point. August sales of P-registration cars are expected to be fractionally ahead of last year and the manufacturers appear to have taken a less rose-tinted view of demand when planning supply. But margins remain under pressure as Evans's pitiful 1.5 per cent return on sales in the first half showed only too clearly.

There is, however, a price for everything, and Evans appears to have factored in all the gloom in the industry and then some. On the basis of forecast profits (before any exceptional charge) of pounds 13.5m this year and pounds 16m next time, the shares trade on a prospective multiple of 11 falling to 9. With a safe dividend giving a forward yield of 6.7 per cent rising to almost 7 per cent, the downside is now very limited.

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