Inchcape’s global footprint to mitigate £750m exposure to Russian market

Inchcape PLC’s global footprint will mitigate the impact of a £750 million exposure to the Russian automotive sector, analysts have said.

As Russia is hit by economic sanctions as a result of its invasion of Ukraine, a report issued by Zeus Capital said that it expected the group’s top-line growth and improving margins to continue and remained comfortable with a “medium term valuation”.

The close consideration of the conflict's impact comes just days after Stellantis chief executive, Carlos Tavares, said that the OEM was weighing-up options to limit the impact on its newly-created van production lines in Russia.

Just last week Inchcape reported a 12% rise in turnover and 131% in pre-tax profits in its 2021 annual financial results.

The reporting period covered the PLC’s £70m disposal of its Toyota and Audi dealerships in St. Petersburg, Russia, as it continued a previously announced shift of focus away from car retail towards automotive distribution.

'Geographic risk'

But, in further reflections on Inchcape’s 2021 results, Zeus today (February 28) reported on the potential effect of continued operations in the region.

“Clearly geopolitical risk is creating market uncertainty,” it said. “Following the disposal of St. Petersburg operations, Inchcape’s annual revenue exposure in Russia is c.£750m.

“Russia profits are no longer split out, but with overall Retail EBIT margin of 2.8% in FY21, profit is likely only c.5% of Group total.

“The Group’s geographical diversification mitigates exposure to any single country. We think the Group continues to have strong growth prospects and attractive financial characteristics, and we remain comfortable with our medium-term valuation.”

Zeus said that, in light of progress made towards the objectives of its Accelerate strategy, it had increased its FY22 and FY23 PBT forecasts for Inchcape by 4.3% and 5.1%, respectively, and have introduced 2024 forecasts.

Its valuation analysis, meanwhile, results in an intrinsic value estimate of 1,113p per share.

It added: “If medium term targets can be hit, we continue to see a pathway to 1,600p per share over time.”

Stellantis' exposure

Stellantis chief executive, Carlos Tavares, has said that it could divert work back to Europe if it faces export bans or is unable to get parts for the factories.

Supplies of in-demand semiconductor microchips and other technology are among the economic sanctions currently being imposed on Russia and Stellantis is understood to be the only OEM which produces cars in the region for export into European markets.

Quoted in the Financial Times, Tavares said: “If we cannot supply the plants…we have either to transfer that production to other plants or just limit ourselves and increase the price.”

Stellantis had planned to begin producing light commercial vehicles (LCVs) for export at Kaluga, about 120 miles south of Moscow.

A Stellantis spokesperson told AM: "We continually monitor the situation with the well-being of our employees, facilities and supply chains in mind. We currently see no impact on our business operations in the UK."