Pendragon raises 2021 profit forecast thanks to 'strong' margins and demand

Pendragon has followed fellow car retail PLCs Marshall and Lookers into issuing an upgrade to its 2021 profit expectations after a “strong” Q3 performance.

A trading update published via the London Stock Exchange this morning (October 7) stated that the AM100 business now expects to deliver an underlying pre-tax profit of approximately £70 million.

The figure is almost 17% up on the £55m to £60m estimate published after the group revealed a £35.1m pre-tax profit in H1 financial results published last month.

Pendragon’s trading update said: “Performance has remained strong during the third quarter, with the shortfalls in new vehicle supply mitigated by strong gross profit per units in both new and used cars, as well as cost and efficiency savings delivered under the group’s strategy implementation.”

The group said that the global shortage of semiconductors and other components to the car manufacturing sector had disproportionately affected the new car franchises it represents during Q3.

However, it reported “robust” order take – ahead of Q3 2020 – and said that new car margins had helped to mitigate the shortfall in deliveries which resulted in the UK’s 34.4% decline in registrations last month.

In used cars it credited improved stock sourcing and unprecedented tailwinds in used car margins for a gross profit ahead of its previous expectations during September. 

Commenting on its prospects for the remainder of 2021, the group said: “We remain cautious about potential further disruption from COVID-19 to both our local markets and global supply chains, and, despite our broad range of sourcing channels, the impact from ongoing shortfalls in both new and used vehicle supply for the remainder of this financial year.

“Whilst we also continue to expect a realignment of used vehicle margins over time, we expect these to remain strong for the remainder of this financial year, providing us with some mitigation to lower new vehicle volumes in particular.” 

Pendragon’s current growth strategy, revealed in September last year, includes the rebranding and restructure its Car Store used car division while driving digital innovation in a new growth strategy to deliver an underlying profit before tax of £85m to £90m by 2025.

Last month AM exclusively revealed that Pendragon’s used car retail division will be rebranded as ZenCar, with an official launch coming in “late Q4”.

Pendragon closed 22 of its Car Store sites in the second half of 2019, but has previously spelled out plans for a new hub and spoke model which will incorporate eight propose-built £7.5m car supermarket sites designed to fulfil end-to-end digital sales and home delivery.

Just over a week ago, Pendragon chief executive Bill Berman told AM that the group was “committed to transforming automotive retail through digital innovation and operational excellence”, adding that “ZenCar represents just that”.

Berman said: "This new brand will deliver a forward-thinking service that we believe will provide consumers with the best retail experience for used vehicles on the market, including an unrivalled product portfolio, unmatched expertise and an innovative customer-centric approach.

"ZenCar will launch to market in late Q4 2021 and roll out through a phased approach into 2022. We can’t wait to share it with our customers; your car, your way with ZenCar”.