Cowie shares take a tumble despite profits improvement

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The Independent Online
BOOMING demand for new cars has brought a one-third increase in half-year profits at Cowie Group, the motor retailing and leasing company, writes Robert Cole.

But Cowie shares fell 12p yesterday to close at 256p. The market had anticipated the profits advance and was concerned about narrowing profit margins.

The shares have lost 20 per cent of their value in six months. Cowie, alongside other motor traders, has declined in popularity partly because the City is already looking ahead to leaner times.

Harry Philips, an analyst at the stockbroker Panmure Gordon, said he thought the negative sentiment premature. 'These results are excellent,' he said. 'But it is hard for Cowie to come up with pleasant surprises for the market to get excited about.'

The increase in volumes pushed pre-tax profits up from pounds 15.5m to pounds 20.5m. Earnings per share rose 31 per cent to 10.5p and the dividend was lifted 16 per cent to 2.7p.

The group sold 28,000 new cars in the first half of 1994, a rise of 23 per cent, against a national increase of 14 per cent.

However, the overall operating margin slipped from 7.3 to 6.4 per cent as Cowie was squeezed between manufacturers and car buyers. Company car fleets are also increasingly price-conscious.

Gordon Hodgson, chief executive, said that new car sales contributed a relatively small proportion of group profits. He added that margins on used cars had improved.

Leasing companies such as Cowie have high debts because of borrowings to fund the purchase of cars for company fleets. Cowie's gearing fell from 230 to 205 per cent.

Discounting the loans associated with leasing, Cowie's gearing was unchanged at 42 per cent.

Panmure Gordon revised its profit forecast for the full year up from pounds 41m to pounds 42.5m.