Smaller Companies: Acquisitions give Vardy pole position

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The Independent Online
REG VARDY, the Sunderland- based motor dealer, will this week announce the acquisition of two dealerships, including a Mercedes site in Glasgow, from Lex Service. The deal comes hot on the heels of last week's purchase of the group's first Mercedes outlet in Cambridge.

Peter Vardy, chairman, said the deals represent the start of a 'new expansion program'. He plans to add pounds 70m to last year's pounds 200m turnover this year and to double the group's sales by 1995.

That sort of growth rate is nothing unusual for Vardy. During the 1980s the group doubled its sales every three years.

The price for the Scottish acquisitions should be about pounds 1.5m, not too much for an entry to potentially lucrative markets. Both are nicely profitable and Lex is only selling because, having acquired the Swan National chain last year, it has breached Mercedes' franchise limits.

Vardy also struck a good deal last week when it acquired the Cambridge site, a new purpose-built outlet, from the Vestey family for pounds 1.9m. The Vesteys are thought to have spent pounds 6m developing the dealership. Servicing that debt pushed the dealership into a pounds 300,000 loss last year but Peter Vardy is confident that with a smaller interest burden it will be profitable from the start.

These deals are typical of Reg Vardy, which, like its successful peer Pendragon, has grown steadily through the car industry slump. Starting with two dealerships 10 years ago, serving a narrow market for expensive cars, Vardy now operates more than 20 sites from Scotland to the Thames Valley.

The group now has a much better spread of products, embracing luxury marques like Rolls-Royce, Ferrari and BMW, volume cars like Fords and Vauxhalls and the first Nissan franchise to be offered since the Japanese car maker took over its own distribution. A second will open in the next couple of months.

That will give it a broad base from which to enjoy the upturn in car sales so far this year. Industry figures for April, announced last week, showed a small decline, but that reflected a good month last year after car sales tax was reduced. The underlying trend is healthily upwards.

Sales are not all, of course, so arguably more important is the fact that the company seems to have negotiated successfully last autumn's collapse in second-hand car values.

The low sales levels of new cars over the past three years is finally working through to shortages of nearly new used cars and pushing up their price. That in turn reduces the differential between new and used car prices, encouraging people to buy new cars again.

That will come too late to give a boost to results for the year to April. Albert E Sharp, the Birmingham stockbroker, expects profits of just over pounds 4m, the same as last year. In the current year, however, the picture looks quite a lot rosier, with profits of well over pounds 5m expected.

On a prospective PE of about 17 at the current share price of 140p, the shares discount some recovery. But with considerable pent-up demand for new cars the sector is likely to remain in favour. Vardy is one of the best car groups and the shares are good value.

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