Shares digital

Inchcape (INCH) – Finals PTP: £235.1m (£213.9m) Divi: 15.7p (15p)

The results demonstrated convincingly why the group’s shares have massively outperformed those of other motor distributors such as Pendragon (PDG) and Lookers (LOOK) over the past year. With 76% of its operating profits earned overseas the company is relatively immune to the difficulties of the UK market. In addition it is concentrating on premium brands where price competition is much less severe.

Unlike its UK competitors, the group enjoyed 3.4% underlying sales growth as well as a modest improvement in net margins

Inchcape also succeeded in increasing its commitment to emerging markets by expanding in China, Lithuania, Latvia Chile and Russia. Further expansion is likely this year.

The company has a strong balance sheet with net debt of only £221.5 million. Citigroup believes this will be improved further by the sale of underperforming assets. The proceeds will almost certainly be invested in further bolt-on acquisitions in emerging markets rather than in acquiring a UK-centric company such as Pendragon (PDG). Further earnings-enhancing share buybacks are also likely.

The company believes that it is well placed to deliver further growth this year despite the difficulties of some markets such as Singapore. Geoff Lowery of the house broker Dresdner Kleinwort is forecasting earnings of 38.4p rising to 41.7p next year. At 407p the shares are selling on a PE of 10.6 falling to 9.8 next year. Lowery has a price target of 500p where the PE would be 13. Such a rating is justified by the company’s record of consistent earnings growth and by its superior prospects.

Shares says: The shares are outstanding in the sector.

by: John Marshall