Shares in Inchcape PLC (LON:INCH) fell after Barclays Capital initiated coverage of the vehicle retailer with an ‘underweight’ recommendation.
It has a number of short-, medium- and long-term concerns over the business, which operates in the premium and luxury sectors.
READ: Inchcape boosted by emerging markets, forex and acquisition as Brexit dampens new car demand in UK
In a note entitled Singapore Sting, BarCap said UK earnings were under pressure and Singapore (17% of profits) was at the top of the cycle, while the company also faces currency headwinds.
It also had worries over the £1.6bn of inventory Inchcape carries and the way it is financed, which means a 1% rise in the London base rate has a 3% impact on profits.
E-commerce a threat to traditional car retailers
E-commerce is also a threat, said BarCap, while the near saturation of the Hong Kong market (17% of profits) was flagged up.
“Inchcape is a high-quality company that consistently generates mid-high teens ROIC [return on invested capital],” the bank said in a note to clients.
“However, it is a low-growth cyclical that is currently at the top of its cycle in most markets.
“Management is trying to shift the profit pool inorganically to higher-growth markets, but this will take time.”
At midday, the shares were off 12.5p at 712p. BarCap’s price target is 695p.