Kwik-Fit gets back on road to recovery
Friday 19 March 1999
Although underlying profits were flat at pounds 58.7m for the year to February, the company said it had seen an uplift in trading in January, February and March. This followed the warning in January that unusually mild weather in December had meant that fewer drivers had their cars serviced.
The trading update caused a 34.5p per cent jump in Kwik-Fit's shares to 439.5p as several brokers upgraded their forecasts. However, some analysts were sceptical about the rise, saying that the pre-tax profit figure of pounds 64m included pounds 8.9m of property asset sales and that the underlying profit outcome was below City expectations.
Last year was a busy one for Sir Tom Farmer's group. It included two acquisitions, principally the pounds 64m purchase of Speedy International, a chain of 568 tyre and exhaust centres in France, Belgium, Spain and Germany.
It also acquired the remaining 75 per cent of Apple Car clinics, a group of 70 car services and MOT test centres.
Sir Tom Farmer said that last year had been a solid one for Kwik-Fit, with the group outperforming in its main markets. It increased its tyre volumes by 5 per cent against a market up by just 1 per cent. In exhausts its volumes rose by 5 per cent against an overall market down 1 per cent.
The group's strategy is to increase its dominance in the UK where it has 860 branches, while breaking into new territories overseas. The group's critics say the company is already nearing saturation point in this country, with 22 per cent of the tyre market and one-third of the exhausts market.
Although Kwik-Fit claims that this leaves plenty of scope for expansion, trading conditions have become tougher. Components such as exhausts are lasting longer, and new rivals such as car dealers are increasing their presence in servicing and offering longer warranties. Other problems include customers trading down to cheaper tyres, while the fall in part prices has had to be passed on to customers.
The company is trying to expand its added-value services business with the launch of insurance policies for break-down and travel.
These policies got off to good start when they were launched three years ago, but growth has since slowed.
Insurance profits were squeezed in the second half due to price competition. Computer problems have also impeded growth rates. Kwik-Fit shares have accelerated at a pace that any boy racer would be proud of over the past five years, with a market outperformance of 53 per cent.
But on current-year forecasts of pounds 63m they trade on a forward multiple of 18. That looks high enough for now, analysts say.
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