Small Cap Value Report (Tue 13 Feb 2018) - Car Dealerships Special

Monday, Feb 12 2018 by

Hi, it's Paul here.

At the suggestion of Matylda, I'll be doing a car dealerships special today. This is because Pendragon (LON:PDG) has reported its 2017 results, but there's nothing much else of interest on the RNS today. So I'll write about PDG, and compare it with 6 other listed car dealerships, being;

Vertu Motors (LON:VTU)
Cambria Automobiles (LON:CAMB)
Lookers (LON:LOOK)
Inchcape (LON:INCH)
Marshall Motor Holdings (LON:MMH)
Motorpoint (LON:MOTR)

I started quite late today, so this article will gradually take shape throughout this afternoon.

Pendragon (LON:PDG)

Share price: 24p (up 14.6% today)
No. shares: 1,424.1m
Market cap: £341.8m

(at the time of writing, I hold a long position in this share)

Full year results - for the 12 months to 31 Dec 2017

We are the UK's leading vehicle online retailer with 184 franchise points and 27 used retail points.

We represent a range of volume and premium products that we sell and service which include:  Aston Martin, BMW, Citroen, Dacia, DAF, Ferrari, Ford, Harley-Davidson, Hyundai, Jaguar, Land Rover, Kia, Mercedes-Benz, MINI, Nissan, Peugeot, Porsche, Renault, SEAT, Smart and Vauxhall.  

Brand names include: Stratstone, Evans Halshaw and Quicks.

Note the emphasis on online sales. This is rather interesting, as Pendragon is not a vanilla car dealership chain. It also has a software business, which is material to group profitability - see table below;


The first column is calendar 2017. The second column is the 2016 comparative. As you can see, group operating profit fell from £101.2m to £83.8m. This was expected, since UK new car sales fell sharply in 2017. The suggested reasons for this include: Brexit-related uncertainty, higher prices due to sterling devaluation, lack of consumer confidence, and uncertainty over diesel vehicles caused by a shift in Government policy.

Other issues which might be hurting sentiment towards the sector include the likelihood of electric cars growing in popularity - and requiring less attention in garages. Also, ultimately…

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Pendragon PLC is an automotive online retailer. The Company's principal market activities are the retailing of used and new vehicles and the service and repair of vehicles (aftersales). Its segments are Stratstone, which consists of its vehicles, truck and commercial vans brand, including the sale of new and used motor cars, motorbikes, trucks and vans, together with associated aftersales activities; Evans Halshaw, which consists of its volume brand, including the sale of new and used motor vehicles and commercial vans; US Motor Group, which consists of its retail operations in California in the United States, including the sale of new and used motor cars; Pinewood, which consists of its activities as a dealer management systems provider; Leasing, which consists of its contract hire and leasing activities; Quickco, which consists of its wholesale parts distribution businesses, and Central, which represents its head office function and includes all central activities. more »

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60 Comments on this Article show/hide all

mercury61 13th Feb '18 1 of 60

The small cap Pendragon (LON:PDG) could be of interest today. Thanks.

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matylda 13th Feb '18 2 of 60

Morning Paul.

As you are aware Pendragon (LON:PDG) results are out this morning, they seem middle of the road on quick glance.

As it seems quiet out there today I have a suggestion. Time permitting and other requests/intentions dependent of course - How about perhaps a Car Retailer special covering Pendragon (LON:PDG), Vertu Motors (LON:VTU), Cambria Automobiles (LON:CAMB) and the like, perhaps?

Blog: Briefed Up
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MrContrarian 13th Feb '18 3 of 60

My morning smallcap tweet:

Audioboom (LON:BOOM), Ebiquity (LON:EBQ), Itaconix (LON:ITX)

Audioboom Group (BOOM) Proposed acquisition, suspension of trading and trading update: $185m RTO of Triton Digital, 'a leading technology provider to the online audio industry that is headquartered in the USA'. Funded by £155m placing. Triton T/O only $41m, EBITDA $9m. Last 2 months trading performance have been ahead of management's expectations. 10% holder Nick Candy's company Candy Capital has been providing financial and accounting services. I think that's one of the notorious Candy Brothers!
Ebiquity (EBQ) sells Advertising Intelligence division for £26m. Will "focus on the group's faster growing, higher margin, tech-enabled consultancy practices: Media Value Measurement and Marketing Performance Optimization." Trading in line but note "as previously flagged, the revenue performance from its US MVM and MPO businesses were below management expectations."
Itaconix (ITX) FY trading: rev growth slower than anticipated, as already notified to the market. Goodwill associated with the acquisition of Itaconix Corporation has been fully impaired by £6.1m. Earn out (payable in shares) cut from £3.4m to £1.1m.

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harvs19 13th Feb '18 4 of 60

Very insteresting announcement for Audioboom
today, proposed £135m reverse takeover of Triton Digital, audioboom market cap is only 35m! It’s not one I hold as it is very much jam tomorrow and heavily loss making, however I must confess this is the first ever stock I bought a few years ago. Being a novice investor I got caught up in the hype and ended up exiting for a large loss after finally coming to my senses! RNS mentions Tritons GAAL EBITDA of US$9m, no mention of the share price that the deal may proceed at. Also included is a trading update which is very fluffy with a lot of talk about increasing available ad impressions and content partners etc, however the all important issue on revenue and profits is quite vague. The talk of Revenues being affected by the strengthening of pound against the dollar tells me revenue is below market expectations. It also seems they have run out of cash. All in all I’m unsure whether this is positive for current holders or not, however if the deal does proceed it would certainly be one to watch as podcasting / on demand spoken word is very much a fast growing industry and a tie up with a relatively big player in audio tech could well mean the enlarged group may be able to gain some serious traction over the next few years. I suspect very few hold this share given its track record and abysmal stock rank, however thought I’d highlight as his deal is potentially game changing.

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CliveBorg 13th Feb '18 5 of 60

In reply to post #314533

That's a good idea, Matylda. Perhaps Lookers (LON:LOOK) - Lookers as well?

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runthejoules 13th Feb '18 6 of 60

Venture Life (LON:VLG) have a 'Commercial update' today which sounds exciting but no numbers. Is their licensing model about to take off and fill up their factory's capacity or are they just busy fools? The Ultradex product is good but I sold out as the SP slid. May not be suitable given lack of numbers today but wondered if it looked interesting to any other punters.

I think car retailers have no long-term future but would be interested to learn of any special situations, bearing in mind lots of garages turning into real estate (or 24-hour gyms, as near me) may itself bring down the price of land.

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matylda 13th Feb '18 7 of 60

In reply to post #314573

Of course - I knew there was a biggie I missed but just couldn't remember it for the life of me - Thanks.

Blog: Briefed Up
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Aislabie 13th Feb '18 8 of 60

Today's Ebiquity (LON:EBQ) announcement has a number of moving parts but would appear overall to be a move forward. One puzzling element is the debt.
The company says that receiving £27 mm in cash willl reduce the net debt to "1x EBITDA" this strange ratio is used rather than simply noting the net debt level or a gearing ratio.
Cynically, there may be a reason; since the net debt at the last announcement was £26mm it would be expected that net debt would now be eliminated and this would be the announcement to make. If EBITDA is around £6mm then cash flow must have suffered a £6mm outflow. And that's something I want to hear about.
Can anyone get me straight here if I am making a mess of this?

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PortsmouthPirate 13th Feb '18 9 of 60

Hi Paul and Graham,
I love the daily write-ups. Keep up the good work!
This question isn't timely, but is there any reason you guys don't follow RM, the education services and supplier group anymore? It looks really interesting to me (low P/E, decent acquisition just made recently, macro trends could be turning in its favour given increasing pupil numbers over the next few years) but I'm a little hung up about its payables which are massive and slightly confusing. If you or any other people that follow this column have opinions on this I'd love to hear them.

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Paul Scott 13th Feb '18 10 of 60

Morning folks!

Matylda - that's a great idea, for me to do a car dealership shares special today, due to there being results out from Pendragon (LON:PDG) but little else of interest. So yes, I'll get cracking on that. Usual thing, I'll be updating the article at a leisurely pace throughout the afternoon.

So I have the following on my list, to compare & assess;

Pendragon (LON:PDG)
Vertu Motors (LON:VTU)
Cambria Automobiles (LON:CAMB)
Lookers (LON:LOOK)

For completeness, I'll also include much larger cap Inchcape (LON:INCH) .

Have I missed anything from that list? If so, please post a comment below.

Regards, Paul.

EDIT - many thanks for your further suggestions. I have added Marshall Motor Holdings (LON:MMH) and Motorpoint (LON:MOTR) to the list. I won't cover Caffyns (LON:CFYN) as it's too small & illiquid.

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matylda 13th Feb '18 11 of 60

In reply to post #314673

Much appreciated Paul - Thanks in advance, look forward to it very much (yes, it was pointed out to me I missed Lookers and Inchcape makes sense too for sure).

Blog: Briefed Up
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Paul Scott 13th Feb '18 12 of 60

In reply to post #314653

Hi PortsmouthPirate,

I last reported on RM (LON:RM.) in May 2014, so we're probably overdue taking another look at it here.

Having a quick look at its StockReport, the key numbers look attractive - a low PER, reasonable & growing dividend yield, and a solid track record. I also like that it has a StockRank of 93, and is classified as a "Super Stock".

So yes, that one definitely looks worthy of a closer look, thanks for flagging it up. If there is enough time today, I'll check out its last results, which seem to have slipped through the net here on 6 Feb 2018.

Regards, Paul.

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Crusty 13th Feb '18 13 of 60

What about Marshall Motor Holdings (MMH), or are they too small?

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Andrew Brien 13th Feb '18 14 of 60

Motorpoint (LON:MOTR) perhaps?

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PortsmouthPirate 13th Feb '18 15 of 60

In reply to post #314683

Thanks Paul, I appreciate it. Of course, the vast majority of its clients rely on education spend from the UK gov and have therefore struggled in recent years. School funding doesn't look likely to get much worse in the next few years in my view but it is already at a pretty terrible level.

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ridavies 13th Feb '18 16 of 60

See major fall in the SP of Scientific Digital Imaging (LON:SDI) this morning. Very large volumes of sales without any reporting. Any information anyone as to why?

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runthejoules 13th Feb '18 17 of 60

I'd also like to hear more of Paul's opinions on UP Global Sourcing Holdings (LON:UPGS) - as and when appropriate. Ta!

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mw8156 13th Feb '18 18 of 60

Any views on Diurnal?

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tic_tac_toe 13th Feb '18 19 of 60

In reply to post #314723

1.7% = ‘major fall’

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Aislabie 13th Feb '18 20 of 60

In reply to post #314723

It is a large selling day in Scientific Digital Imaging (LON:SDI) , in fact it looks like the largest ever. But since it only drove the price down to levels seen four weeks ago I could almost see this as a positive indicator for the company. If it can take this selling pressure without crumpling I assume that a lot of ready buyers still have this on their "buy on dips" radar

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About Paul Scott

Paul Scott

I trained as an accountant with a Top 5 firm, but that was so boring that I spent too much time in the 1990s being a disco bunny, and busting moves on the dancefloor, and chilling out with mates back at either my house or theirs, and having a lot of fun!Then spent 8 years as FD for a ladieswear retail chain called "Pilot", leaving on great terms in 2002 - having been a key player in growing the business 10 fold. If the truth be told, I partied pretty hard at the weekends too, so bank reconciliations on Monday mornings were more luck than judgement!! But they were always correct.I got bored with that and decided to become a professional small caps investor in 2002. I made millions, but got too cocky, and lost the lot in 2008, due to excessive gearing. A miserable, wilderness period occurred from 2008-2012.Since then, the sun has begun to shine again! I am now utterly briliant again, and immerse myself in small caps, and am a walking encyclopedia on the subject. I love writing a daily report for on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »


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