Shares in Pendragon closed 5 per cent higher yesterday after the car retailing group cranked up profits by more than expected in the first three months of this year, with double-digit increases in the number of vehicles sold outweighing higher interest costs and slightly lower prices for used cars.
The Nottingham-based group, which has sites across Scotland and trades under Evans Halshaw and Stratstone brands, made an underlying profit before tax of £23 million. That was £4.3m more than in the same period last year.
As a result, Pendragon said it expects to "comfortably outperform" previous financial expectations even as it absorbs spiralling interest costs which rose by nearly 52 per cent in the first quarter. Analysts at Zeus Capital raised their full-year expectations by 12% to £55m.
On a like-for-like basis, new vehicle volumes were up 20.1% on the same period a year earlier, outperforming the wider market which was up 18.4%. Used vehicle volumes were 14% higher, thanks in a large part to the group’s digitally-led used car sales and servicing business CarStore.
READ MORE: Pendragon defends its empire with the sword of profitability
Gross profit per unit (GPU) on new vehicles was up by 9.4%, or £230, to £2,686 compared to the first quarter of last year. The used GPU figure of £1,457 was down by 17.7% or £314 on last year, which benefitted from "uniquely elevated market conditions".
Along with most auto dealers, Pendragon has been boosted for the past year by the lower production of new cars driven in large part by semiconductor shortages. This has led to elevated prices for both new and used vehicles.
Profits on each new vehicle sold by Pendragon in the first quarter of this year improved on the back of lower discounting to lure in buyers, and was further aided by auto manufacturers' focus on producing higher-end models. Although profits on used vehicles fell, they still remain "well above historic levels".
"I am delighted to report a very strong performance in the first quarter, which builds on the momentum we generated last year from the progress with our strategic and operational initiatives," chief executive Bill Berman said.
READ MORE: Car dealer Pendragon posts better-than-expected profit
"We continued to trade strongly in UK motor, across both new and used markets, and our performance shows the benefits of the strategy we have been pursuing in recent years. It is really encouraging to see all of the group’s divisions in growth, particularly when considering the ongoing challenges in the external operating environment."
The strong showing will bolster defences against activist hedge fund Palliser Capital, which wrote to Pendragon last month calling for a boardroom shake-up amid claims that executives were distracted by a failed £400m bid to take over the business.
Pendragon shares lost more than a quarter of their value in December when it revealed that its biggest shareholder, Hedin Mobility of Sweden, had dropped a mooted takeover offer citing "challenging market conditions" and the "uncertain economic outlook".
READ MORE: Pendragon slumps as Swedish suitor drops takeover bid
Palliser - which owns about 4% of Pendragon's shares, versus Hedin's 28% stake in the business - wants to appoint three of its own board directors in a bid to "refocus on driving profitability" by expanding the higher-margin car servicing operation. Its demands came just weeks after the hedge fund successfully engineered a boardroom clear-out at Edinburgh-headquartered Capricorn Energy.
Elsewhere in the group, Pendragon's Pinewood software business delivered a 14.3% increase in operating profit during the first quarter to reach £3.2m, up from £2.8m the previous year. Its main product is a cloud-based dealer management system that it sells to retailers around the world.
The group's leasing business, Pendragon Vehicle Management, also recorded a rise operating profit from £4.9m £5.2m.
"It is really encouraging to see all of the group’s divisions in growth, particularly when considering the ongoing challenges in the external operating environment," Mr Berman added.
Shares in Pendragon, which collapsed to 20.2p when Hedin withdrew its takeover interest in December, closed yesterday's trading 0.86p higher at 18.06p.
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