LONDON (ShareCast) - Used car volumes were strong in 2011 at car dealer Pendragon but demand for new cars tailed off as customers delayed purchases.

Underlying revenue in 2011 eased to £3,418.2m from £3,465.8m the year before.

Underlying sales of used cars climbed to £1,287.5m from £1,189.1m in 2010, but new car sales were down to £1,515.9m from £1,678.7m the year before. On the other hand, gross margin remained steady at 5.9% in the new cars business whereas they dipped to 9.7% on the used cars side of the business from 10.5% in 2010.

Underlying after sales revenues tumbled to £326.6m from £354.7m the preceding year, with the gross margin hardening to 59.6% from 57.1%.

Underlying profit before tax, which excludes net finance costs, improved to £30.8m from £25.2m the year before.

Underlying earnings per share, restated to reflect the effects of last year's rights issue, rose to 2.3p from 1.8p.

The company does not pay dividends at present but the company did signal its intention to return to dividend payments when its 2012 results are out, if the financial position warrants it.

The company ended 2011 with net borrowings of £246.8m, down £78.7m on the debt figure at the end of 2010, reflecting the £75.2m raised throught its rights issue.

"Used car performance continues to be a high point for the group and will remain a key strategic area in 2012," declared Trevor Finn, Chief Executive of Pendragon.

The after sales market is still feeling the impact of what Finn described as "reduced market opportunity in the less than three year old vehicles group".

On the plus side, Finn expects the prestige new car sector to perform well in 2012, though the volume car market will be much more prone to fragile consumer sentiment.

"Given our recent performance, strong cost control, lower finance costs and clear strategic goals we expect to maintain our momentum into 2012," Finn said.

Broker Panmure Gordon said the results were slightly above its forecasts at the profit before tax level, albeit with earnings before interest and tax (EBIT) a bit below the broker's expectations.

"We maintain our below consensus forecasts on the back of these results and expect downgrades elsewhere given the market backdrop remains tough, with any potential recovery H2 [second half] weighted," Panmure Gordon said.

Despite expecting downgrades, the broker has upped its target price to 13p from 9p, "given the improving risk appetites and re-ratings seen elsewhere," but with limited potential upside given the strong share price performance of late, the broker sticks with its neutral stance on the shares.

The shares dipped 0.75p to 12.25p on the results.

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