# Pendragon: Progress on multiple fronts

- Link: https://www.directorstalkinterviews.com/pendragon-progress-on-multiple-fronts/4121022900
- Published: 2021-09-16T13:03:00+01:00
- Author: Amilia Stone

**Pendragon plc** (LON:PDG) has announced interim results for the six months to 
30 June 2021, which are ahead of guidance and our expectations. The Group has made
strong progress in terms of growth, cost efficiencies and strategic implementation
to ensure further progress can be made.

 * **H1 results**: The underlying PBT of £36.1m (excluding £1m of discontinued losses)
   was usefully ahead of guidance and demonstrates a major turnaround compared with
   the prior year’s interims. Underlying operating profit for each of the business
   units was broadly comparable with the figures reported for the second half of
   2020. The balance sheet has also strengthened significantly vs. last year. Adjusted
   net cash (ex IFRS 16 leases and stocking loans) stands at £9.5m vs. £46.0m net
   debt YOY.

 * **Key drivers**: The main driver of the turnaround versus H1 2020 was **Franchised
   UK Motor**; its underlying result improved from an operating loss of £18.1m to
   a profit of £37.6m. Revenue was up 57% at £1,673.8m, with **Used** revenue up
   53.4% (at £781m), **New** **Car** up 65.5% (at £761.7m) and **Aftersales** up
   34.2% (at £131.1m). Pinewood continues to perform well with revenues +12.0% to
   £12.1m, with international users increasing by 14%. **Leasing** performed well
   in this area of the market and saw revenues +31.7% to £49.0m driven by a 90% 
   increasing in de-fleet vehicle disposals given the current environment.

 * **Outlook**: While Pendragon has clearly delivered a strong H1 performance, we
   believe the outlook statement is suitably cautious given the supply pressures
   that are building at present particularly in new cars. We believe the demand 
   for new cars remains strong and is reflected in a stronger September order bank
   for this year vs. last. The key delta remains when these cars arrive – whether
   that’s Q4 2021 (calendar) or Q1 2022. The used car price inflation we have seen
   is expected to continue going into H2 2021.

 * **Forecasts**: We are maintaining our headline forecasts post these results, 
   which are at the lower end of management guidance for 2021.

 * **Investment view**:  We remain confident that Pendragon will hit its strategic
   target of £85-90m underlying PBT by 2025, perhaps even a year earlier. The outperformance
   this year moves the company much closer towards this target, but we do expect
   some degree of used car price and margin normalisation next year.  We have previously
   stated that, at £85-90m of PBT, the value per share of Pendragon would be over
   50p. Discounting this back on a risk-adjusted basis at 12.5% provides a valuation
   of 33p, up from our previous 28p estimate due to the passage of time.

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