Vardy's growth fails to convince the City

REG VARDY, the car distributor, shifted back into first gear yesterday as it reported a 46 per cent rise in interim pre-tax profits to pounds 12.3m. Not that the company itself has suffered any reverse. The results, for the six months to 31 October, continue the steady growth that has seen earnings per share almost double in the past five years.

Vardy's problem is in the City. Motor dealers have long been seen as low-quality businesses whose minuscule profit margins are at the mercy of the manufacturers. Even Vardy, seen as one of the best in the industry, has languished on a low rating. Following the slump in used car prices last year, the group has watched its shares lose a third of their value in nine months.

Yesterday Vardy reported that margins in the used-car division actually increased due to better stock management. "They have set up a situation where they can optimise their buying power to do better deals," said Peter Whiting, an analyst with Williams de Broe in Leeds.

Meanwhile, Vardy is steering clear of takeover bids such as its rival Pendragon's offer for Evans Halshaw. "It is less likely we would be involved in that scale of acquisition," says Graeme Potts, chief executive, pointing out that manufacturers would probably force the company to sell a large number of dealerships if it took over one of its rivals.

Vardy shares, which jumped 15p to 190p yesterday, trade on a forward earnings multiple of just six. Although this looks extremely cheap, given Vardy's record, any real recovery looks limited unless investors rediscover their taste for motor dealers.