Strong margins and car buyer demand power Pendragon to profit upgrade

Pendragon has increased its profit expectations for 2021 by a further 14.3% after continued car buyer demand powered it to another performance upgrade.

The AM100 PLC said that a strong performance in the first two months of Q4, a lower-than-expected shortfall in new car deliveries and strong margins across its vehicle sales had resulted in an increase in anticipated year-end underlying pre-tax profits from £70 million to £80m.

It is the group's fourth profit upgrade of 2021, following earlier announcements in June, July and October.

Pendragon acknowledged the role played by “favourable market conditions”, created by limited vehicle supplies and high consumer demand, along with cost and efficiency savings realised through the successful delivery of its new business strategy in today's statement issued via the London Stock Exchange.

But it also noted ongoing uncertainty over the COVID-19 pandemic, following this week’s return of obligatory face coverings in retail environments.

It said: “We remain cautious about potential further disruption from COVID-19 to both our local markets and global supply chains.

“However, our strong financial performance, with only one month of the financial year remaining, means we now expect group underlying profit before tax for FY21 to be approximately £80m.”

Pendragon added: “The board is confident that the Group’s strategy positions it well to respond to the ongoing market uncertainty and to capitalise on any resultant opportunities.”

Pendragon’s share price rose 6.2% this morning to 19.5p, but market analysts at Zeus Capital believe the sector “remains undervalued”.

Zeus highlighted the Constellation Automotive 400p per share offer for Marshall Motor Holdings this week – representing a 42.8% premium to the closing price on November 26 – and said: “Further consolidation in the sector cannot be ruled out and we believe the sector remains significantly undervalued.”

On the outlook for next year, Zeus added: “Whilst we think margins will remain stronger for longer into next year, we are still mindful of rising cost inflation.”