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Amid the coronavirus crisis, the businesses are under intense pressure to preserve cash and ensure sustainability. People have lost their jobs or are being furloughed. Many businesses have reportedly collapsed into administration. The economic situation is deteriorating every day, and the IMF has projected a negative growth rate of minus 3 per cent for the global economy in 2020. Not only this, the WHO has warned that the worst is yet to come. The countries are chalking out plans to exit the lockdowns and grease the wheels of the economy while ensuring hedge from the second wave of the pandemic.
During this catastrophe caused by the Covid-19, various businesses are on the brink of collapse or are seeking consolidation. The latest development in this regard is from the online car retailer, Pendragon Plc which decided to explore the potential benefits of a combination of its business with Lookers Plc, as they both operate in similar vertical. The company confirmed that it held a planned discussion with Lookers to figure out how this plan of action could be beneficial for both sets of shareholders.
These discussions have now been stopped, as Lookers Plc seems to be in a financial mess. Like most of the other businesses, Lookers has a lot to cope up with the crisis caused by the pandemic. The situation further worsened as the Financial Conduct Authority (FCA) ordered a probe into the misrepresentation of fraudulent expenses and debtor balances reported by Lookers Plc. The company has also delayed the release of its results.
Pendragon, however, remains in a comparatively better position, just finding a way to reshape the business and to reduce expenses both ahead of time, amid the ongoing catastrophe caused due to Covid-19, which has incidentally halted business operations. Furthermore, as recently reported, Pendragon continues to gather support from its stakeholders through the current scenario. The company strives to preserve cash and reduce its cost base. Below is a comparative chart of stock prices of the two auto retailers.
(Source: Thomson Reuters)
Like other businesses, the retail and the automotive businesses have also faced the brunt of the novel coronavirus. The retail sector was asked to shut shops amid the pandemic. The automakers faced disruptions in supply chains. According to the Office for National Statistics, the retail sales fell by 5.1 per cent in March 2020. The auto retailers were already struggling with a fall in demand and lean margins since the previous year due to uncertainty over Brexit and transition to new hybrid technologies. Let us investigate brief highlights of these rival auto retailers.
Pendragon Plc
Pendragon Plc (LON:PDG) is a Nottingham, United Kingdom based organisation that works as an online car retailer, engaged with the clearance of a scope of new autos, light engine vehicles, used vehicles, business vans, trucks and other engine vehicles. Teleios Capital Partners GmbH, Odey Asset Management LLP and Schroder Investment Management Ltd. are the significant investors in the company. The organisation has four working departments, UK Motor (Sales and service), Software for the car business, renting services with the exceptional yield on Investment because of the reliable stockpile of trade-in vehicles, US Motor (Sales and Service).
The Group continues to remain cautious during ongoing economic uncertainty post-Brexit and threat pertinent to Covid-19 pandemic and its economic implications.
The Group’s revenue for the financial year ending 31st December 2019 stood at £4,506.1 million. The Group incurred significant underlying losses in the first half of the year; consequently Pendragon has suspended the dividend for FY2019.
On 5th May 2020, at the time of writing (before market close, GMT 9:22 AM), Pendragon Plc shares were up by 3.81 per cent from its previous day closing price and were trading at GBX 7.90. Stock's 52 weeks High and Low is GBX 24.80 /GBX 4.02. At the time of writing, the share was trading 96.52% higher than its 52-week Low and 68.15% lower than its 52-week High. The beta of the company stood at 1.16, reflecting higher volatility as compared to the benchmark index. The total M-Cap (market capitalisation) of the company while writing stood at £106.31 million.
Lookers Plc
Lookers Plc (LON:LOOK) is an Altrincham, the United Kingdom-based group, which operates as motor retail and aftersales company. The company offers its products and services into three different verticals: Automotive, Agriculture and Leasing.
According to the Covid-19 update released on 23rd March, the group is in active discussion with its OEM partners for support and is taking required steps to preserve cash and reduce costs. The company expect its net debt to be around GBP 62 million as on 31st December 2019 and has a revolving credit facility of GBP 250 million from banks. The group is also benefited from strong property portfolio with GBP 317 million of net book value as on 31st December 2019.
The group announced a delay in the publication of financial results for 2019, due to some potentially fraudulent transactions. Additionally, the company stated that it is unable to predict the impact of rapidly evolving events but is taking relevant measures to ensure the safety of its staff and financial stability. According to the Group’s trading update released last month, the Board along with Grant Thornton LLP has completed the initial phase of the investigation. As per the investigation reports on the operating division concerned, certain misrepresented debtor balances were identified in respect of bonus receivables together with various false expenses reported. These misrepresentations were expected to give rise to a one-off, non-cash charge of approximately £4 million in the financial statements of 2019.
This initial investigation was extended across all operating divisions at the request of the Board. The company stated that there are some operating divisions which have not reconciled certain non-cash balance sheet accounts, and which shall result in a rise to a one-off, non-cash charge. However, this part of the investigation is incomplete.
The Group recently stated that it expects profitability for FY 2019 on an underlying PBT basis, while the aggregate impact of the fraud investigation is not yet known. The Board continues to believe that it is too early to make any reasonable estimate of the financial impact on the Group during 2020 and beyond, given the ongoing uncertainties resulting from the covid-19 situation. The Board's key focus remains to ensure long term liquidity; safeguarding colleagues and customers while ensuring sustainability.
On 5th May 2020, at the time of writing (before market close, GMT 09:24 AM), Lookers Plc shares were down by 0.42 per cent against its previous day closing price and were trading at GBX 23.90. Stock's 52 weeks High and Low is GBX 92 /GBX 10.54. At the time of writing, the share was trading 126.76% higher than its 52-week Low and 74.02% lower than its 52-week High. The beta of the company stood at 1.98, reflecting higher volatility as compared to the benchmark index. The total M-Cap (market capitalisation) of the company while writing stood at £93.63 million along with an annual dividend yield of 17.18 per cent.
