Pendragon PLC (LON:PDG) has delivered a confident interim management statement this morning confirming an increase in PBT for Q1 of 17.6% compared to 2016. The company remains confident on outlook for 2017 following the positive start to the year. We maintain our cautious forecast assumptions for now, and even on this basis, believe the shares are looking good value particularly from a dividend yield and EV/EBITDA perspective.
Interim management statement – Revenue was up 10.4% on a like for like basis as the company became more aggressive on sourcing and moving high volumes of used stock through the existing infrastructure. This contributed to total revenue growth of 23.3% vs Q1 2016. New gross profit was flat for the year on a LFL basis, with an increased in used and aftersales gross profit of 16.5% and 7.6% respectively. The company remains in a strong position financially with a robust balance sheet. The share buyback is ongoing with £10m of the £20m program announced in May now complete.
Key themes – The company has maintained its focus on the used car market delivering LFL growth in used revenue of 23.3%, keeping them on track to deliver their long-term target of a doubling in used revenue by 2021.This has been driven by pushing more stock through its current infrastructure as flagged at the FY results in February. Aftersales performance was robust, with 7.6% growth in gross profit on a LFL basis as the company continued to benefit from the increase in the 0 – 3-year car supply. New gross profit was flat for the period on a LFL basis, Pendragon expect a flat new car market for the year.
Forecasts – We leave our forecasts unchanged on the back of this announcement although acknowledge that we remain behind consensus with the company expectations of flat/modest growth in adjusted PBT this year. While Q1 has clearly been a strong period for the sector with record new car registrations, we believe trading is likely to get more difficult from here. New car price inflation will also play a major role in the outcome of 2017 and beyond, and we are measuring consumer confidence trends carefully at present.
Investment view – As with many stocks in the sub-sector, we believe Pendragon Plc has been oversold and looks attractive from a longer-term valuation perspective. The balance sheet remains strong, and we anticipate further investment in used cars as we progress through the year. The dividend yield is approaching 5% and looks attractive, along with its EV/EBITDA rating below 5x based on very cautious assumptions.
