And finally... Pendragon have ended the day a whopping 18% down, at a four-year low.
This morning’s profit warning has gone down very badly with the City, with traders unimpressed that the firm will only make £60m this year, not the £75m previously expected.
David Madden of CMC Markets comments:
The company announced that weak consumer demand has led to a drop in the number of people looking to purchase new cars. Pendragon anticipates the weakness in the new car market to remain until mid-2018. Shares in Pendragon have been in decline since January 2016, and the gap lower adds to the negative sentiment.
There’s also some scepticism that things will pick up next year....
However, the wider market reaction is rather muted. The FTSE 100 ended the day up one point, or 0.02% at 7524.
Right, time for a round-up on the Pendragon profits warning, from my colleague Julia Kollewe...
Shares in the UK’s biggest car dealer have plunged by 17% after a surprise profit warning which also raised new fears over consumer spending.
The alert from Pendragon, which trades under the Evans Halshaw and Stratstone fascias, and sold 159,000 used cars last year, is the latest in a raft of profit warnings issued in recent weeks by UK companies blaming worsening consumer confidence.
Pendragon, which sells all the main marques, said demand for new cars was sliding and the market had peaked. It now expects to make £60m of underlying pretax profits this year, down sharply from a previous forecast of £75m, which was similar to last year’s figure.
The shares plunged 23% in early trading and later traded 17% lower at 23.74p.
The company said sales had stalled in the summer. It now expects the new car market to continue to decline this year and into the first half of next year. Its chief executive Trevor Finn blamed “waning demand” from consumers coupled with oversupply from “manufacturers with ambitious objectives”.
“We had a very strong first quarter, a good second quarter and then demand waned ... in the big selling month of September and run-up to it,” he said. September is a key month for car sales because number plates change. In the first six months of 2017, Pendragon made a profit of £48.5m, up 9.7% from a year earlier....
Just in: Eurozone consumer confidence has risen again - a sharp contrast with the UK today.
Figures from the European Commission show that consumer morale beat forecasts this month, as Europe’s economic recovery continued.
Curiously, the EC’s eurozone consumer confidence index was still in negative territory, rising from -1.2 in September to -1.0 this month. The long-term average for this index is minus 10 in the euro area.
Over in New York, the US stock market has hit new record high.
The Dow Jones Industrial Average, the S&P 500 and the tech-focused Nasdaq indices all struck new record levels at th start of trading.
Traders are citing relief about last weekend’s Japanese election, which delivered a large win for prime minister Shinzo Abe. That means investors can can look forward to more money-printing and record low interest rates under Abenomics.
Donald Trump’s tax reform plan has also been driving shares higher, even though experts warn that most of the benefits will go to the richest Americans.
I mentioned earlier that UK profit warnings have jumped sharply, from 45 per quarter to 75.
Well, the bad news is this trend will probably get worse if the British economy keeps slowing and Brexit talks keep stumbling, according to Pierre Bose of Credit Suisse.
Reuters has the details:
Pierre Bose, head of European equity strategy at Credit Suisse said more profit warnings from UK companies were to be expected if the economy’s growth continued to deteriorate.
“We need results on the Brexit talks because from a corporate perspective, for investment spending, you need better clarity,” he added.
In a note, Credit Suisse said that despite the UK market benefiting from a global cyclical upturn, it faces significant economic and political challenges.
A hefty profit warning from Britain’s biggest car dealer sent shares crashing nearly 20% and raised fears about the state of one of the nation’s most important industries.
Pendragon alarmed the market and City analysts with a sudden admission that too many cars are being made and consumer confidence has stalled.
In The Times (£), Robert Lea points out that Pendragon’s profits will be 20% lower than expected this year:
Shares in Britain’s biggest motor retailer went sharply into reverse after Pendragon finally admitted that it had been caught up in the decline in new car sales.
The company, which trades under its Stratstone and Evans Halshaw showrooms, reported that profits this year will come in at about £60 million, nearly a fifth lower than last year.
The group said it is experiencing “unprecedented pressure” in the premium sector “caused by certain manufacturers continuing to force vehicles into the market despite softening demand”.
CEO Trevor Finn set out steps that he hopes will “accelerate transformation”, including looking for a senior hire in the UK, considering a pullback from premium brands, and halting any new acquisitions in the US. It hints that it may pull out of the US altogether.
Pendragon’s profit warning is also fuelling fears that stocks of unsold cars in the UK are building up to dangerous levels.
Accountancy firm UHY Hacker Young warned earlier this month thatcar dealers are sitting on 16% more unsold stock than they were just a year ago. The total of new cars gathering dust is now worth £27.3bn, up from £23.6bn last year.
That helps to explain why Pendragon’s financial performance has deteriorated, as this big stockpile will put pressure on dealers
Paul Daly, Partner at UHY Hacker Young, blamed auto manufacturers for pumping more new cars into the market, even though demand is slowing.
“Car makers continue to push more and more vehicles on to dealers’ books, but that can’t go on indefinitely. It’s unsustainable for unsold stock to keep rising so quickly.”
Rain Newton-Smith, the CBI’s chief economist, says chancellor Philip Hammond must help Britain’s manufacturing sector:
“To boost investment growth, Government should use the Budget to provide a fillip for factories through business rate reforms, including exempting new plant and machinery from rates altogether, and switching to the more recognized CPI inflation measure rather RPI when calculating upratings.”
UK business optimism drops as manufacturing growth 'softens'
NEWSFLASH: UK factory order growth has slowed, and bosses are gloomier about future prospects.
That’s according to the latest survey of British manufacturing, just released by the CBI (which represents UK business leaders).
It found that optimism about business conditions fell in the last quarter, for the first time in a year.
Worryingly, the survey found that growth in output, domestic orders and export orders also eased over the last three months.
Here’s the details:
29% of businesses reported an increase in total orders, and 23% a decrease, giving a balance of +6%. Both domestic orders (+5%) and export orders (+12%) grew at a slower pace, albeit remaining above their long-run averages (-4% and -6% respectively)
The CBI also found that companies are planning to cut back on investing in new equipment, and are also worried that they’ll struggle to find new staff.
Investment intentions for the year ahead deteriorated, with spending plans for buildings at their lowest since July 2009. Expectations for spending on new equipment also weakened. Plans for investment in training and innovation remained much firmer by comparison.
Concerns over labour shortages edged up from already high levels, with the number of respondents citing them as a limitation to investment plans at the highest since October 2013.
The slew of profit warnings from UK firms this autumn is becoming a serious concern.
Too many companies, both big and small, have shocked the City in recent weeks by suddenly revealing unexpected problems - or a surprise deterioration in trading.
Here’s a reminder of some of the gloom from this month alone:
Merlin Entertainment, the theme park operator which owns Legoland and Madame Tussauds, warned that it experienced a “difficult summer’. It blamed recent terror attacks in the UK for scaring off customers, as it cut its profit expectations.
Serviced office provider IWG saw a third wiped off its value last week after warning that sale were weaker than expected. A slowdown in London was partly to blame.
Engineering firm GKN slashed its profit forecasts, due to problems at its US aerospace arm and two unexpected legal claims.
Interserve, the construction and support services company, issued its second profit warning since the summer. The firm, whose public sector contracts include monitoring prisoners on probation, also warned it could breach its banking covenants
Last week, The Times’s Patrick Hoskins wrote that the City’s “duffers’ corner” is getting crowded, adding:
It was only a few months ago that Britain was celebrating a seven-year low in the number of profit warnings. That benign period feels well and truly over. The incompetent and the unlucky are now having to fess up. And the share market is grumpily intolerant of any deviation from plan. Share prices are getting thumped.
It’s also worth noting that the car industry is facing some fundamental changes - from self-driving vehicles to a renewed clampdown on pollution.
My colleague John Harris has written a good column on this issue today, which will not bring much cheer to Pendragon.
Here’s a flavour:
After a century in which the car has sat at the heart of industrial civilisation, the age of the automobile – of mass vehicle ownership, and the idea (in the western world at least) that life is not complete without your own set of wheels – looks to be drawing to a close. Top Gear is a dead duck. No one writes pop songs about Ferraris any more. The stereotypical boy racer appears a hopeless throwback. And in our cities, the use of cars is being overtaken by altogether greener, more liberating possibilities.
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