Vertu Motors tumbles after profit warning

7th Dec 2023 09:48

(Sharecast News) - Vertu Motors tanked on Thursday as it issued a profit warning, citing a "volatile" consumer environment.

The car dealership group said profits for the year to 29 February 2029 were set to be below current market expectations. In particular, it pointed to "a material change" in the UK used vehicle market, where there was a "significant" drop in wholesale values in October and November.

This was due to higher supply into the wholesale markets, retail demand being hit by higher interest rates and high vehicle prices impacting affordability.

In an update for the three months to the end of November, Vertu said group like-for-like used vehicle volumes fell 2%, which was an improvement on the 5.7% reduction seen in the first half. However, gross profit generation from used car sales was below expectations.

Vertu said UK used vehicle values are likely to continue to weaken above historic norms in the near term.

"Once the current pricing correction has eased, used car prices in the UK will be more affordable to the consumer and margins should stabilise," it said. "Reducing interest rates in the medium-term would also aid affordability and provide a further stimulus to a market benefitting from increased supply."

Chief executive Robert Forrester said: "The current consumer environment remains volatile and recent trends of sluggish new car retail demand and weakness in used car pricing are likely to persist for some months.

"Vertu remains very focused on delivering outstanding customer experience, tightly controlling inventory and being diligent on costs. The group has a strong balance sheet and long track record of operational excellence and financial discipline. These attributes mean we remain very confident in our ability to take advantage of these challenging market conditions and the resulting increased opportunities in the sector."

At 1020 GMT, the shares were down 18% at 69.80p.

Russ Mould, investment director at AJ Bell, said: "Car seller Vertu Motors is firmly in reverse gear after a profit warning which has much wider ramifications.

"If Vertu is to be believed the company is very much a victim of circumstance rather than being the author of its own misfortune. The material change in the used vehicle market it is pointing to will send a chill through the bones of investors in its rivals - with wholesale values falling significantly over the last two months.

"And worse, Vertu doesn't think things are going to get better on this score any time soon. Some of this is down to higher supply - an issue you would expect to even out over time - but higher interest rates making car finance options less affordable and high vehicle prices are also an issue.

"This is not just a problem for the car market. The impact of higher rates continues to hit households in a steady trickle as they remortgage or move on to a new finance agreement for their vehicle, for example.

"This lagged impact means appetite for big ticket purchases is likely to be pressured for some time to come and could make Vertu's road to recovery a bumpy one."