Pendragon (AIM:PDG) has said it will adapt its strategy to "transform automotive retail through digital innovation and operational excellence" in an update released this morning.
The retail group said it will rebrand and restructure its Car Store used car division while accelerating digital innovation in a new growth strategy. In doing so, the Company informed investors that it will aim for a target in underlying profit before tax of £85-90m by 2025.
Since the nationwide lockdown due to the COVID-19 pandemic, Pendragon has already implemented several permanent efficiency gains which will save around £37m-per-year.
The group believes there is a strong case for change and a significant opportunity for upside in profitability and that it is ‘well positioned to deliver transformational performance.’
Shares in Pendragon have recovered from lows of 4.02p in March at the height of the coronavirus pandemic and were trading 1.69% higher this morning at 8.22p.
Pendragon’s plan is formed around three key priorities;
- Unlocking value in the franchised UK motor division
- Grow and diversify Pinewood
- Disrupt standalone used cars.
Firstly, the Company said it will improve its used vehicle gross margins through digitalisation by developing and introducing a used vehicle acquisition and management platform. Meanwhile, the group will develop focused internal reporting in order ‘to drive insight into performance into areas such as vehicle preparation efficiency and sales force effectiveness.’ The Company said these improvements will reduce costs and improve margin profitability.
Secondly, the group’s 'Software as a Service' Pinewood division - has delivered revenue growth at a compound annual growth rate of over 10% over the past five years. Pinewood has developed a pipeline of customer orders which will be converted over the next 18 months to continue the growth in its overseas customer base with existing orders adding over 80% to the current international customer base and 10% overall.
“We believe Pinewood has material opportunity for growth through these international channels, underpinned by a compelling proposition,” Pendragon said this morning.
Thirdly, Pendragon will focus on rebranding and restructuring its Car Store network around a hub and spoke model incorporating eight car supermarket sites designed to fulfil end-to-end digital sales and home delivery at a cost of around £7.5m per location.
Pendragon introduced its new strategy by citing the fact that the UK is the most attractive used vehicle market globally, with a ratio of over three used vehicles sold for everyone new.
The overall market for used cars is around eight million cars sold per annum while the group believes there is an addressable market of around three million cars per annum, which is larger than the total new car market.
The group said work is currently in progress to develop an appropriate brand identity to reflect a digitally led product offer, supported by physical outlets.
"We firmly believe the three strategic priorities set out today will provide a platform to transform the Group's performance, leading to sustainable profit growth and delivering attractive returns for our shareholders,” said Bill Berman, CEO of Pendragon.
He added, “Critically, our strategy is designed to equip the business to react to changing consumer patterns in the years ahead and ensure, in particular, that we are well positioned to take advantage of digital innovation.”
Pendragon will report its results for the first half of FY20 on 24 September.
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