Pendragon Analyst Q&A: Strong trading activity with good cost control (LON:PDG)


Pendragon plc (LON:PDG) is the topic of conversation when Zeus Capital’s Head of Research Mike Allen caught up with DirectorsTalk for an exclusive interview.

Q1: Pendragon published full year results for the year ended 31st of December 2020, what key themes did you note in the update?

A1: First of all, they did an underlined PBT of £8.2 million and that implied that H2 PBT profit of £39.2 million following a loss of £31 million in the first half so very clear that a geared H2 recovery took place. That was driven by a strong trading activity, good cost control, benefits of restructuring, the digital strategy clearly taken place as well.

So, I’d say they were probably the key themes and cash generation was also good as well and we saw net debt reduction.

Q2: Has you forecast been affected in any way?

A2: At the moment, the guidance has been suspended, we’ll probably bring forecast back into the market I think April/May time, after we’ve seen the impact of the key trading period in March.

We think, in terms of the medium-term objectives, it’s against £85/90 million of PBT by 2025, we think that’s still very realistic given the trends we saw in the second half of the year.

Q3: How do you view the company in terms of an outlook?

A3: Clearly management is still quite cautious about the short-term outlook at the moment and, there have been some OEM supply issues that continue to emerge, but we do believe that the group is growing in resilience as it responds to these market conditions and I think their strategic plan is working very well too.

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A key measure is they’ve sold over 20,000 vehicles in January and February of 2021 when we’ve been in lockdown for most of that period, so I think the initiatives and strategy that the management put together are working well and allowing them to outperform the market at the moment.

Q4: Just in terms of a valuation, how do you view Pendragon?

A4: We can see the pathway to the group delivering the PBT of £85-£90 million by 2025 as we’ve said, and I think if they delivered that, then you could see a share price in excess of 50p on that basis. I think if you discount it back on a risk adjusted basis, we’re certainly comfortable with 28p per share at the moment.

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