LONDON (ShareCast) - (Sharecast News) - Car dealer Pendragon was under the cosh on Friday as warned on profits, citing the impact of regulatory change on the supply of new vehicles.
The company, which owns Stratstone and Evans Halshaw, said the new Worldwide Harmonised Light Vehicle Test Procedure has caused "significant" new vehicle supply disruption that "will clearly have an effect on the group".

Pendragon noted that UK new car market data for September showed a 20% drop in new car registrations, with a similar trend in October. As a result, it now expects 2018 underlying pre-tax profit of £50m, down from the £60.4m reported the year before.

"During the year we have continued to invest in our used car business in new start up locations and transformation costs.

"As announced at the half year we commenced the roll out of our 'used car factories' for the refurbishment of used inventory. This accelerated investment is being made in spite of the short term dilutive effect and the significant costs incurred, latest data gives us encouragement for the future growth of this part of the business."

Under conditions defined by EU laws, the WLTP laboratory test is used to measure fuel consumption and CO2 emissions from passengers, as well as their pollutant emissions.

At 1420 BST, the shares were down 8.4% to 24.15p.

Russ Mould, investment director at AJ Bell, said: "An unscheduled trading update will rarely contain good news, particularly when there is an imminent announcement in the diary already, and so it proves today with the UK's largest independent car dealer Pendragon which has issued a profit warning.

He said it could be feared that the 20% drop in new car sales and similar trend for October are not just a blip linked to the new regulations "but also reflective of a downturn in demand for big ticket items amid an uncertain consumer backdrop".

"Unsurprisingly Pendragon is attempting to pivot to the more resilient used car market. While today's warning might have been expected to provoke a period of retrenchment, it is spending money on new sites as well as putting cash into so-called used car factories to refurbish old inventory.

"These actions are to be applauded as it shows the business has an eye on the longer-term prize rather than hiding amid short-term pressures. Management are ultimately being proactive in response to problems which are not of their own making but instead affecting the whole industry."

Berenberg kept its 'hold' rating and 26p price target on Pendragon as it said the company has many avenues for value creation beyond UK motor operations.

"We continue to believe the value in Pendragon lies within its used car, leasing and software businesses. In addition, circa 30% of the company's market cap is expected to be realised through the sale of its US business," it said.

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