Pendragon PLC (LON:PDG) shares were still driving with the handbrake on even after the car dealer lifted the bonnet on an ambitious new five-year strategy to “transform automotive retail through digital innovation and operational excellence”.
The company, which has already announced the loss of 1,800 jobs as it closed 15 outlets and trimmed support functions, said the plans were intended to restore it to “sustainable profit growth and deliver attractive returns for stakeholders”.
With consumers adopting “new digital, and low-touch activities” due to the coronavirus pandemic, new chief executive Bill Berman plans to improve Pendragon’s digital capabilities, helped by expansion of its Pinewood software and associated customer relationship management systems, alongside the development of eight sites over the next five years, at a rough capital cost of £7.5mln apiece.
“We believe that a combination of a digital proposition and these physical stores will allow us to gain a meaningful share of the target market,” the company said.
Berman, former boss of US chain AutoNation, aims to “disrupt” the standalone used cars market, where it believes there is an addressable market for Pendragon of around 3mln cars per year, larger than the total new car market.
The directors believe the company “is significantly advantaged today against its peers” as it has a “steady source of suitable stock, an ability to source parts for preparation at scale advantaged pricing, a high level of brand-referrals within the group and cross-group technical ability”.
It reckons it can build such data capabilities that this “will allow us to leverage further scale advantages into a standalone used car proposition and drive higher margins”.
It is targeting an underlying profit before tax of £85-90mln by the 2025 financial year.
The shares, which have fallen more than 70% over the past three years, were up 1% at 8.14p on Wednesday morning.
Analysts at Berenberg said the five-year targets were ambitious and, if achieved, would result in adjusted PBT of more than double 2018 levels and almost 20% higher than its 2016 peak.
“The targets assume a normalised (not buoyant) car market and are based on three areas of focus: the UK motor division, the Pinewood software expansion and used cars,” they added.
“However, we appreciate that many of the steps put in place by new CEO Bill Berman appear strategically aligned to consumer preferences and shareholder interests, and should realise value, both in the short and long term. The market could change quickly and, once the likely weaker H1 numbers are out of the way on 24 September, we believe Pendragon could well come back on investors’ radar as the outlook should improve from there.”
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