Pendragon plc (LON:PDG) has released a strong set of results for the year to 31 December 2021. Underlying PBT (excl. US Motor) was £84.4m, 5.3% ahead of our £80.2m forecast. The Group has capitalised on favourable trading conditions, as well as executing its strategy to reduce costs and improve efficiency. We remain confident that Pendragon will successfully navigate ongoing supply issues and deliver against its strategic goals. Our refreshed risk-adjusted valuation estimate rises to 37.2p per share.
¨ FY21 results: Underlying PBT from continuing operations was £84.4m and compared to our forecast of £80.2m, which was upgraded numerous times during the year. Revenues (ex. US Motor) were +23.7% at £3,421.3m (Z £3,655.8m) or +27.1% on a LFL basis, with gross profit at £437.3m (Z £431.1m) implying a margin of 12.8%. Underlying EBIT (ex. US Motor) was £117.4m (Z £112.3m) implying a margin of 3.4%, with underlying net interest costs (ex. US Motor) at £33.0m slightly higher than the £32.1m we had forecast. Underlying diluted EPS was 4.9p and in line with our forecast. There was no dividend as anticipated.
¨ Key drivers: The growth in gross profit of 35% on a LFL basis reflected strong improvements in margins on both new and used GPU (gross profit per unit). Underlying operating costs (excl. D&A) increased by 16.5% to £238.8m. However, comparing to £358.6m in FY19 highlights the level of cost restructuring that has taken place under the current management team. The core Franchised UK Motor business performed well delivering 27% LFL growth in revenues at £3,191.2m (Z £3,435.7m), with underlying EBIT of £85.8m (Z £81.7m), which compared to £18.5m last year. Pinewood saw strong ongoing growth at 9.4% to £24.4m (Z £22.6m), with operating profit up 3.3% at £12.5m (Z £13.6m). Car Store revenues were +60% YOY at £141.5m (Z £117.5m) generating a full year underlying profit of £1.6m (Z £0.8m). Leasing revenues increased by 4% to £89.9m (Z £100.5m), with operating profits +32% to £17.5m (Z £16.2m). The growth in profit was driven by the higher profit on disposal of de-fleeted vehicles.
¨ Forecasts: The trading conditions seen at the end of 2021 (restricted supply but higher margins) have so far continued into 2022. The war in Ukraine is disrupting the car parts supply chain and limiting new car production in Europe. We have therefore decreased our revenue forecasts for FY22 and FY23 by 2.3%, but increased our margin assumptions to leave PBT unchanged. We remain mindful of the impacts of inflation on both Pendragon’s overheads and on consumer confidence and demand. We introduce FY24 forecasts today, with PBT of £64.4m, showing a continuation of expected profit growth trends.
¨ Valuation: Pendragon now trades on a P/E of 8.8x FY22 and 9.0x FY23. We estimate Pendragon shares would be worth 51.7p if the Group hits the midpoint of its FY25 £85-90m PBT target with a 25% CT rate, applying 11x PE (midpoint of 8.0x-14.0x). Discounting back from the start of FY25 to today at 12.5% gives a value of 37.2p per share, 35.4% more than the current price.
Summary financials
| Price | 27.5p |
| Market Cap | £384.2m |
| Shares in Issue | 1,396.9m |
| 12m Trading Range | 14.8p– 27.8p |
| Free float | 69.38% |
| Next Event | H1 results update – July |
Financial forecasts
| Yr end Dec (£’m) | 2021A | 2022E | 2023E | 2024E |
| Revenue | 3,421.30 | 3,617.70 | 3,784.40 | 3,945.40 |
| yoy growth (%) | 23.7 | 5.7 | 4.6 | 4.3 |
| EBIT | 117.4 | 86.1 | 93.3 | 100.3 |
| Adj. PBT | 84.4 | 55.3 | 58 | 64.4 |
| Adj. EPS (p) ful dil. | 4.9 | 3.1 | 3.1 | 3.4 |
| DPS (p) | – | – | – | – |
| Net cash/(debt)^ | -49.7 | -36.6 | -29.2 | -18.9 |
| P/E (x) | 5.6 | 8.8 | 9 | 8.1 |
| EV/EBITDA (x) | 2.7 | 3.3 | 3 | 2.7 |
| Div yield (%) | – | – | – | – |
Source: Audited Accounts and Zeus estimates
^ Excluding IFRS 16 operating lease liabilities
