Analysts at JP Morgan Cazenove have upgraded Pendragon PLC (LON:PDG) to ‘neutral’ from ‘underweight’, saying the motor car retailer was probably through the worst period.
The investment bank said it expected a “near-flat outlook” for the second half of the financial year “to help both new and used margins, with [profit before tax] operationally geared to this improvement”.
Analysts added that the outlook for the company was “beginning to improve, due in part to weakening comparatives … while significant risk remains, we expect the worst of the market conditions have passed, such that Pendragon's valuation may begin to look increasingly favourable”.
The bank also upped its target price for the firm to 23p from 19p previously, while also upping its pre-tax profit forecasts for the full year by 7.6% to £54.9mln, though this was around 10%-15% below consensus forecasts.
In its results for the first half of the year on Tuesday, Pendragon reported an underlying pre-tax profit of £28.4mln, 41.4% lower than the same period last year, while like-for-like revenues declined 0.9% to £2.4bn.
The profit drop was driven primarily by a contraction in the group’s UK motor division, whose operating profit declined 45.4% to £25.4mln in the period, as division revenues fell 1.5% to £2.1bn.
In late-morning trading Wednesday, Pendragon shares were up 1% at 24.2p.