June 12, 2019 / 6:36 AM / 4 months ago

Pendragon shares plunge a quarter as UK car dealer warns on profit

(Reuters) - Pendragon shares slumped as much as 26% on Wednesday after the British car dealer warned of a pretax loss this year, blaming weak demand for both new and used cars.

The company, which launched a review of its businesses in April and recently replaced its top management, has been hit by rising labour costs and price pressures in the premium market.

Pendragon, which operates the Evans Halshaw, Stratstone and Quickco brands, expects significant losses in the first half of the year, resulting in a “small” underlying loss for the whole of 2019 as the number of unsold cars increases.

The company also said it would suffer “certain internal operational challenges” this year, but did not give details.

Consumer spending in Britain is faltering amid uncertainty over its move to leave the European Union, which could end free trade with its biggest trading partner. The car industry also faces particularly challenges, including declining diesel vehicle sales, stricter regulations and the costs of developing new technologies such as electric and self-driving vehicles.

British new car registrations dropped 4.6% in May, an industry body said earlier this month.

“Pendragon has arguably been affected by worse management of its stock, having been forced to sell inventory at cheaper-than-anticipated levels,” Berenberg analysts said in a note.

Liberum analysts had been expecting an underlying profit of 31.4 million pounds this year, versus 47.8 million in 2018.

Pendragon, which sold 256,000 vehicles in 2018, said it expected to return to overall profitability in the second half of 2019, limiting its full-year losses.

“The expected loss for the year is disappointing. That said, we see significant addressable opportunities to improve the business and return to profitable growth,” Chief Executive Officer Mark Herbert said in a statement.

Pendragon had previously said it expected 2019 to be broadly stable compared with 2018.

Pendragon’s shares fell to their lowest in more than six years, dragging some of its peers lower. Auto Trader Group Plc was down 1.9%, while Inchcape slipped 0.3%.

Reporting by Samantha Machado and Pushkala Aripaka in Bengaluru, Editing by Gopakumar Warrier and Mark Potter

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