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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

Car dealer Pendragon issues profits warning; manufacturing confidence falls – as it happened

A car dealership in Weston-super-Mare, England.
A car dealership in Weston-super-Mare, England. Photograph: Matt Cardy/Getty Images

And finally... Pendragon have ended the day a whopping 18% down, at a four-year low.

This morning’s profit warning has gone down very badly with the City, with traders unimpressed that the firm will only make £60m this year, not the £75m previously expected.

David Madden of CMC Markets comments:

The company announced that weak consumer demand has led to a drop in the number of people looking to purchase new cars. Pendragon anticipates the weakness in the new car market to remain until mid-2018. Shares in Pendragon have been in decline since January 2016, and the gap lower adds to the negative sentiment.

There’s also some scepticism that things will pick up next year....

However, the wider market reaction is rather muted. The FTSE 100 ended the day up one point, or 0.02% at 7524.

The pound is a little higher against the US dollar tonight too, at $1.321, despite the latest warning signs from the UK factory sector.

That’s all for today. Thanks and reading and commenting. GW

The forecourt of a main motor car dealer in Brislington, in Bristol.

Right, time for a round-up on the Pendragon profits warning, from my colleague Julia Kollewe...

Shares in the UK’s biggest car dealer have plunged by 17% after a surprise profit warning which also raised new fears over consumer spending.

The alert from Pendragon, which trades under the Evans Halshaw and Stratstone fascias, and sold 159,000 used cars last year, is the latest in a raft of profit warnings issued in recent weeks by UK companies blaming worsening consumer confidence.

Pendragon, which sells all the main marques, said demand for new cars was sliding and the market had peaked. It now expects to make £60m of underlying pretax profits this year, down sharply from a previous forecast of £75m, which was similar to last year’s figure.

The shares plunged 23% in early trading and later traded 17% lower at 23.74p.

The company said sales had stalled in the summer. It now expects the new car market to continue to decline this year and into the first half of next year. Its chief executive Trevor Finn blamed “waning demand” from consumers coupled with oversupply from “manufacturers with ambitious objectives”.

“We had a very strong first quarter, a good second quarter and then demand waned ... in the big selling month of September and run-up to it,” he said. September is a key month for car sales because number plates change. In the first six months of 2017, Pendragon made a profit of £48.5m, up 9.7% from a year earlier....

Here’s the full story:

Just in: Eurozone consumer confidence has risen again - a sharp contrast with the UK today.

Figures from the European Commission show that consumer morale beat forecasts this month, as Europe’s economic recovery continued.

Curiously, the EC’s eurozone consumer confidence index was still in negative territory, rising from -1.2 in September to -1.0 this month. The long-term average for this index is minus 10 in the euro area.

Analyst firm Langton Capital is also worried that profit warnings could accelerate in the next few months.

“Bro”?!

Updated

A sign for Wall Street carved into the side of a building in New York.

Over in New York, the US stock market has hit new record high.

The Dow Jones Industrial Average, the S&P 500 and the tech-focused Nasdaq indices all struck new record levels at th start of trading.

Traders are citing relief about last weekend’s Japanese election, which delivered a large win for prime minister Shinzo Abe. That means investors can can look forward to more money-printing and record low interest rates under Abenomics.

Donald Trump’s tax reform plan has also been driving shares higher, even though experts warn that most of the benefits will go to the richest Americans.

I mentioned earlier that UK profit warnings have jumped sharply, from 45 per quarter to 75.

Well, the bad news is this trend will probably get worse if the British economy keeps slowing and Brexit talks keep stumbling, according to Pierre Bose of Credit Suisse.

Reuters has the details:

Pierre Bose, head of European equity strategy at Credit Suisse said more profit warnings from UK companies were to be expected if the economy’s growth continued to deteriorate.

“We need results on the Brexit talks because from a corporate perspective, for investment spending, you need better clarity,” he added.

In a note, Credit Suisse said that despite the UK market benefiting from a global cyclical upturn, it faces significant economic and political challenges.

Updated

Pendragon profits warning: What the papers say

Britain’s car industry is “in crisis” following Pendragon’s gloomy news today, says Simon English in the Evening Standard.

He writes:

A hefty profit warning from Britain’s biggest car dealer sent shares crashing nearly 20% and raised fears about the state of one of the nation’s most important industries.

Pendragon alarmed the market and City analysts with a sudden admission that too many cars are being made and consumer confidence has stalled.

In The Times (£), Robert Lea points out that Pendragon’s profits will be 20% lower than expected this year:

Shares in Britain’s biggest motor retailer went sharply into reverse after Pendragon finally admitted that it had been caught up in the decline in new car sales.

The company, which trades under its Stratstone and Evans Halshaw showrooms, reported that profits this year will come in at about £60 million, nearly a fifth lower than last year.

The FT’s Katie Martin flags up (£) that Pendragon is planning changes to halt its sales slide.

The group said it is experiencing “unprecedented pressure” in the premium sector “caused by certain manufacturers continuing to force vehicles into the market despite softening demand”.

CEO Trevor Finn set out steps that he hopes will “accelerate transformation”, including looking for a senior hire in the UK, considering a pullback from premium brands, and halting any new acquisitions in the US. It hints that it may pull out of the US altogether.

The City analysts who track Pendragon have been pulling some screeching handbrake turns since its profits warning came out.

Berenberg have lowered their recommendation for the stock to hold, from buy, and cut the price target from 46p to 26p.

Canaccord Genuity have also cut their price target to 26p, from 36p.

All perfectly understandable, but a little late - as Pendragon’s shares have fallen by a sixth this morning, from 29p to 24p.....

UK stocks of unsold cars are rising

Pendragon’s profit warning is also fuelling fears that stocks of unsold cars in the UK are building up to dangerous levels.

Accountancy firm UHY Hacker Young warned earlier this month that car dealers are sitting on 16% more unsold stock than they were just a year ago. The total of new cars gathering dust is now worth £27.3bn, up from £23.6bn last year.

UK car stocks
UK car stocks Photograph: UHY Hacker Young

That helps to explain why Pendragon’s financial performance has deteriorated, as this big stockpile will put pressure on dealers

Paul Daly, Partner at UHY Hacker Young, blamed auto manufacturers for pumping more new cars into the market, even though demand is slowing.

“Car makers continue to push more and more vehicles on to dealers’ books, but that can’t go on indefinitely. It’s unsustainable for unsold stock to keep rising so quickly.”

Rain Newton-Smith, the CBI’s chief economist, says chancellor Philip Hammond must help Britain’s manufacturing sector:

“To boost investment growth, Government should use the Budget to provide a fillip for factories through business rate reforms, including exempting new plant and machinery from rates altogether, and switching to the more recognized CPI inflation measure rather RPI when calculating upratings.”

Here’s a handy chart showing how UK firms are hunkering down and resisting buying new buildings:

The recent slowdown in UK factory growth could deter the Bank of England from raising interest rates next month.

So argues Simon French of Panmure Gordon:

Updated

UK business optimism drops as manufacturing growth 'softens'

NEWSFLASH: UK factory order growth has slowed, and bosses are gloomier about future prospects.

That’s according to the latest survey of British manufacturing, just released by the CBI (which represents UK business leaders).

It found that optimism about business conditions fell in the last quarter, for the first time in a year.

Worryingly, the survey found that growth in output, domestic orders and export orders also eased over the last three months.

Here’s the details:

  • 29% of businesses reported an increase in total orders, and 23% a decrease, giving a balance of +6%. Both domestic orders (+5%) and export orders (+12%) grew at a slower pace, albeit remaining above their long-run averages (-4% and -6% respectively)

The CBI also found that companies are planning to cut back on investing in new equipment, and are also worried that they’ll struggle to find new staff.

Investment intentions for the year ahead deteriorated, with spending plans for buildings at their lowest since July 2009. Expectations for spending on new equipment also weakened. Plans for investment in training and innovation remained much firmer by comparison.

Concerns over labour shortages edged up from already high levels, with the number of respondents citing them as a limitation to investment plans at the highest since October 2013.

Updated

Vertem Asset Management have summed up the situation...

A bad autumn of profits warnings

London this morning.
London this morning. Photograph: Paul Davey / Barcroft Images

The slew of profit warnings from UK firms this autumn is becoming a serious concern.

Too many companies, both big and small, have shocked the City in recent weeks by suddenly revealing unexpected problems - or a surprise deterioration in trading.

Here’s a reminder of some of the gloom from this month alone:

Merlin Entertainment, the theme park operator which owns Legoland and Madame Tussauds, warned that it experienced a “difficult summer’. It blamed recent terror attacks in the UK for scaring off customers, as it cut its profit expectations.

Serviced office provider IWG saw a third wiped off its value last week after warning that sale were weaker than expected. A slowdown in London was partly to blame.

Engineering firm GKN slashed its profit forecasts, due to problems at its US aerospace arm and two unexpected legal claims.

Interserve, the construction and support services company, issued its second profit warning since the summer. The firm, whose public sector contracts include monitoring prisoners on probation, also warned it could breach its banking covenants

Last week, The Times’s Patrick Hoskins wrote that the City’s “duffers’ corner” is getting crowded, adding:

It was only a few months ago that Britain was celebrating a seven-year low in the number of profit warnings. That benign period feels well and truly over. The incompetent and the unlucky are now having to fess up. And the share market is grumpily intolerant of any deviation from plan. Share prices are getting thumped.

Updated

It’s also worth noting that the car industry is facing some fundamental changes - from self-driving vehicles to a renewed clampdown on pollution.

My colleague John Harris has written a good column on this issue today, which will not bring much cheer to Pendragon.

Here’s a flavour:

After a century in which the car has sat at the heart of industrial civilisation, the age of the automobile – of mass vehicle ownership, and the idea (in the western world at least) that life is not complete without your own set of wheels – looks to be drawing to a close. Top Gear is a dead duck. No one writes pop songs about Ferraris any more. The stereotypical boy racer appears a hopeless throwback. And in our cities, the use of cars is being overtaken by altogether greener, more liberating possibilities.

The sale of diesel and petrol cars is to be outlawed in the UK from 2040. But only 10 days ago Oxford announced that it is set to be the first British city to ban all petrol and diesel cars and vans – from a handful of central streets by 2020, extending to the entire urban centre 1o years later.

Paris will ban all non-electric cars by 2030, and is now in the habit of announcing car-free days on which drivers have to stay out of its historic heart.

In the French city of Lyon, car numbers have fallen by 20% since 2005, and the authorities have their sights set on another drop of the same magnitude. London, meanwhile, has shredded the idea that rising prosperity always triggers rising car use, and seen a 25% fall in the share of journeys made by car since 1990.....

Pendragon’s profit warning has prompted traders to dump the stock, says David Madden of CMC Markets.

So, after their early plunge, Pendragon’s shares are still down almost 17% today at a four-year low.

Pendragon’s profit warning is the latest in a series of blows to Britain’s car sector.

So far this month, we’ve learned that:

UK car sales

Pendragon's profits wilted in the last quarter

Profit warnings are, by their nature, unexpected. But today’s update from Pendragon is a particular surprise, as the company sounded so upbeat less than three months ago.

Back on August 1st, Pendragon declared that it had “a clear path for growth”, after growing its underlying profits by almost 10% in the first half of 2017.

Clearly, the summer and early autumn have been much more challenging than it expected.

Today’s profit warning (online here) shows that Pendragon’s new car business suffered at 20% fall in gross profits in the third quarter of this year. And with sales expected to keep falling into early 2018, it will take some time until profitability picks up again.

Pendragon’s used cars business has also suffered a 20% plunge in gross profits, due to the knock-on effect of the slowdown in the new car business.

It says:

This price correction, which was primarily focussed on some premium brands and therefore affected our Stratstone business, was a reaction to significant numbers of cars being registered and then sold into the market at significant discounts.

This practice drives down the value of younger cars in the market and nearly new inventories (eg dealer demonstrators and loan cars).

City analysts are now demanding answers....

Updated

Shares in Inchcape, a rival car dealership,have fallen by 4% in early trading.

That shows that traders believe Pendragon’s woes are part of a wider malaise in the UK economy.

The City of London is most unimpressed by Pendragon’s recent performance, says retail analyst Nick Bubb:

The profit warning from the normally bullish Pendragon group will go down like a lead balloon in the City today and put pressure on the other Motor dealers…

Pendragon’s shares are on track for their worst day’s trading in eight and a half-year, says Reuters.

Pendragon’s profits warning is the latest sign of weakness in the UK economy, says Connor Campbell of SpreadEx.

He writes:

British car dealership chain Pengdragon plunged nearly 20% after warning on full-year profit, the company struggling with the declining demand for new cars and the impact this has had on the used car market.

It’s the latest sign of retail-woe in the UK, especially among companies dealing with big ticket items, as the household spending squeeze continues.

The Evening Standard’s City expert, Simon English, is aghast at Pendragon’s profits warning:

In another surprise development....Pendragon’s chairman, Mel Egglenton, has stepped down for personal reasons, with immediate effect.

The company has appointed Chris Chambers, the senior independent director, to replace him.

Pendragon shares tumble 20%

Shares in Pendragon have plunged by almost 20% at the start of trading.

They’ve slumped to their lowest level in over four years, as investors react to today’s profits warning from the car dealer.

Pendragon's share price

Updated

Pendragon issues profits warning as consumer confidence wanes

Pendragon's logo

Pendragon, the UK car dealership firm, has sent a shiver through the City this morning by issuing a profits warning.

The company, which runs the Evans Halshaw and Stratstone outlets, says that demand for new cars has slumped in recent months, driving down the value of second-hand cars as well.

Pendragon, which is one of Europe’s largest dealers, blames a fall in consumer confidence. It told shareholders that:

The decline in demand for new cars and the consequent used car price correction has impacted this year’s profit outturn.....

During the quarter as consumer confidence waned we experienced significant market pressures.

Pendragon, Britain’s largest listed car dealer, now expects to post full year underlying pre-tax profits of just £60m, down from expectations of around £75m.

Official figures have shown that UK car sales have been falling for the last six months, as people have cut back on big-ticket items.

Pendragon fears that this trend will continue:

In the premium sector we have experienced unprecedented pressure on new vehicle margin caused by certain manufacturers continuing to force vehicles into the market despite softening demand.

We expect new car registrations to continue to reduce for the remainder of this year and into next year with the volume franchise reductions easing first, followed by a normalisation of the registrations of premium vehicles.

Today’s gloomy news from Pendragon is the latest in a series of profit warnings.

UK-listed businesses have issued 75 profit warnings in the last quarter, up from 45 between April and June. That’s the biggest quarterly rise in nearly six years, according to accountancy firm EY.

Reaction to follow....

The agenda: CBI industrial trends, political dramas

The Bombardier factory in Belfast.
The Bombardier factory in Belfast. Photograph: REX/Shutterstock

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Today we’ll get a new healthcheck on Britain’s economy, when the CBI issues its monthly industrial trends report. Last month, the survey showed that manufacturing was holding up well, with output growing and exports “firm”.

Political drama could also move the markets today, as the Catalonia crisis rumbles on.

The ball is back in the Catalan parliament’s court, after the Spanish government in Madrid triggered 155 of the Spanish constitution, imposing direct rule. Could Carles Puigdemont, the president of Catalonia, respond by declaring independence?...

There’s more stability in Japan, where Shinzo Abe is celebrating a general election win.

Abe’s Liberal Democratic party (LDP) and its junior coalition partner Komeito have retained their super-majority, sending the Japanese Nikkei rallying, for its 15th day in a row - a new record.

The Nikkei

This means that Abe’s “Abenomics” growth strategy, based around ultra-loose monetary policy, will probably continue. He is also expected to try to reform Japan’s constitution, including its pacifist Article 9 which limits the country’s armed forces to self-defence.

European markets are expected to open cautiously:

Here’s the agenda:

  • 11am: Germany’s Bundesbank releases its monthly report.
  • 11am: CBI industrial trends report for October.
  • 3pm: Eurozone consumer confidence report

Updated

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