Analyst forecasts ‘very strong’ first half profits for dealers

Broker Zeus Capital is forecasting ‘very strong’ profits for the first half for dealers but said the second half and the September plate-change could be hit by new car supply restrictions.

In its review of the retail motor sector, Zeus Capital head of  research Mike Allen  said so far he had not seen evidence of significant new car supply shortages caused by the semi-conductor crisis but he expected supply disruption to materialise later this year.

“We have not seen reports of significant new vehicle supply disruption thus far, but we expect this to materialise in H2 2021 and potentially beyond.

“This could have a particularly strong impact in September, the plate change month, if OEMs cannot produce and supply vehicles to meet demand. We continue to watch the unfolding supply situation closely,” said Allen.

Allen, a long time follower of listed motor dealers and supermarkets, expects ‘very strong’ profits for H1 but H2 will be down year on year because of supply constraints and lack of government support.

There is also the risk that the used car market will cool, which has been flagged up by a number of dealers.

“Another concern on our radar is labour shortages and difficulty in recruiting staff, which could lead to competitive wage inflation.

“General cost inflation, higher costs due to increased activity, and higher interest rates further down the line could also provide earnings headwinds to dealers.,” said Allen.

Overall, across the board,  Allen forecasts a modest profit recovery over the next three years.