Pendragon profit halves

LONDON (Reuters) - Car dealer Pendragon (PDG.L) reported a halving of first-half profit but said it had been boosted by the government's "cash for bangers" scheme and that the downturn in the market was easing.

Pendragon, which trades as Stratstone, Evans Halshaw and Chatfields, on Tuesday posted a profit before tax of 8.7 million pounds for the six months to the end of June, on revenue 36 percent lower at 1.58 billion pounds.

"Britain's car market seems to have stabilised. There are signs that the worst is behind us and the comparisons from last year will start to help now," Chief Executive Trevor Finn told Reuters in an interview.

Pendragon's shares, which have more than trebled in value in the last year, were down 5 percent at 42.75 pence by 11:20 a.m., valuing the group at around 300 million pounds.

"The result was higher than our full year forecast (5.3 million pounds), which we leave unchanged given the tough car market. However, we believe the shares will trade up to the 50 pence level in the short term," said Arden analyst Tim Richmond.

New car sales in Britain rose 2.4 percent on the year in July helped by the government's scheme, launched in May, to give motorists a 2,000 pounds discount on new vehicles when they trade in one more than ten years old.

The initiative, which has so far generated around 155,000 orders, is due to end in February 2010 -- or when the government's 300 million pounds funding is exhausted -- but Pendragon wants to see it extended.

"The average vehicle sale from the scrappage scheme generates a VAT receipt of about 1,000 pounds for the government so it's self financing. Given that is the case it wouldn't hurt the government to extend it to spring next year," said Finn.

The government said that more than half of the 300 million pounds had been spent over the past three months and that there were no plans to increase funding.

"It was introduced as a capped scheme to deliver an initial boost for car orders to get confidence back in the market," said a spokeswoman for the Department for Business, Innovation and Skills.

TOUGH MARKET

Pendragon, which sells new and used vehicles, said the car market was still challenging, but it had made a significant turnaround from the loss incurred in the second half of 2008, helped by cost cutting and improved market conditions.

"I see a strong used car market going forward and the new car market creeping up, particularly at the luxury end, which was worst hit and should come back quickest," said Finn.

Car manufacturers and retailers have been hit hard by a plunge in sales in the economic downturn.

U.S. giant General Motors GM.UL filed for bankruptcy in June, while British-based car dealers Inchcape (INCH.L) and Lookers (LOOK.L) have cut jobs, shut loss-making businesses and raised around 330 million pounds in deeply discounted share sales to stay afloat.

Inchcape posted a better-than-feared 58 percent drop in first-half profit last month but said it would cut 350 jobs.

Pendragon, which recently secured 530 million pounds of new financing, said it had cut staff, closed 14 franchises and managed stock levels closely in the first half but that it was now the right size to deal with the market as it is.

(Additional reporting by Keith Weir; Editing by James Davey and Simon Jessop and Mariam Karouny)