Pendragon shares hammered despite rising sales, divi hike

Shares fell 6% amid disappointment over profits at its volume dealership Evans Halshaw aand Stratstone

The UK’s biggest car dealer Pendragon failed to convince the City today as shares went into reverse despite accelerating sales and a huge hike in the dividend.

The shares were marked down 6 per cent, or 2p, to 32.25p amid disappointment over profits at its volume dealership Evans Halshaw as well as Stratstone, which sells more expensive marques including BMWs, Jaguars and Mercedes-Benzs.

The results came amid further signs of recovery in European car sales, which rose 5.2 per cent to 967,778 vehicles in January, lifted by demand in all major markets including strugglers Portugal, Ireland, Italy and Greece.

Pendragon, which lifted pre-tax profits 14 per cent to £38.9 million on revenues of more than £3.8 billion, saw UK sales of new cars jump 18 per cent over 2013.

Chief executive Trevor Finn said the “chief single driver” was a rise in new leasing deals to tempt buyers to spend on new cars. The average buyer spent £16,500 taking a new car off a Pendragon forecourt last year.

“There’s been a provision of finance at subsidised rates by car manufacturers. More manufacturers, like Volkswagen, have their own banks. More people are effectively hiring cars rather than buying them,” he said.

Finn is confident that the huge rise in cars more than 10 years old on the road since 2006, from 7.7 million to 11 million, will eventually translate into sales.

But the rise in new car sales seen lately is also increasing the number of cars less than three years old on the road, which he believes is good news for Pendragon’s more lucrative after-sales maintenance business. The full-year dividend is up 300 per cent to 0.4p from 0.1p.

Analysts, however, focused on underlying earnings at Stratstone and Evans Halshaw, which showed modest growth to £26.9 million and £27.4 million respectively.

Panmure Gordon’s Mike Allen said: "The performance of its core motor operations was below our expectations, and may be seen as slightly disappointing given the strong market conditions experienced throughout 2013."