If there's one sure-fire strategy in business for keeping the barbarians beyond the gate, it's to prove that all is well within the empire. In this respect, Pendragon got off to a racing start in 2023.
The company's shares are trading some 5 per cent higher this afternoon, having earlier in the day rallied by more than 10% after the car dealer reported higher-than-expected profits for the first quarter of this year.
Despite a whopping 52% surge in interest costs, operating profits within the Nottingham-based group's primary car division were up by nearly 39%. That paved the way to an underlying pre-tax profit of £23 million, up £4.3m on the same period a year earlier.
As a result, analysts at Zues Capital have raised their full-year profit forecast by nearly 12% to £55m for the owner of the Evans Halshaw and Stratstone dealership chains.
🔔 Get more for free: You can now get our daily Business Briefing, Business Insight and weekly Ian McConnell on Business newsletters sent direct to your email inbox
📝Sign up in seconds here 👈
Those figures 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".
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.
READ MORE: Pendragon profits rally despite easing used car prices
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. Profits on used vehicles fell by 17.7%, but still remain "well above historic levels".
In addition, Pendragon said it anticipates that the supply of used vehicles will remain tight "for the foreseeable future".
Given the tenacity in its extended shareholder revolt against Capricorn, it seems unlikely Palliser will be quick to concede defeat in its quest for Pendragon. Market conditions have bolstered its defensive position, but Pendragon will need to consider what comes after this cycle of supply constraints ends.
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules here