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Inchcape shares in reverse gear after broker starts coverage of car retailer with a negative call

BarCap said UK earnings were under pressure and Singapore (17% of profits) was at the top of the cycle
car rounding a bend
The company operates in the premium and luxury end of the market

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.

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