Cantillon

INSIDE THE WORLD OFBUSINESS

Car sales stall despite machinations

For all the talk of a pick-up in consumer confidence, things don’t look good in the motor trade, with January sales down 18.5 per cent in what historically has been the busiest month of the year. A bad January does not bode well for the market.

Some suggest that part of the fall-off is a result of the new registration system which they believe – and hope – will create a bi-annual spike in sales.

That may be wishful thinking. It would take a monumental sales push to replicate the traditional January trade in a summer month. The new “132” registration in July may lift the market from its usual post-March decline but the new system is not expected to bed down in the public’s consciousness until future years.

Grim as they are, the figures would have been much worse were it not for a remarkable spike in sales on the last day of the month, when 2,842 registrations were recorded.

Part of this last-minute rush is likely to be down to distributor and dealer pre-registrations. These are new cars registered before sale in order to meet sales targets. In reality these are counted as sales but are actually unsold to the public at large.

It’s a quick-fix solution that lets a firm boast better end-of-month figures than its rival. The plan is then to sell these cars on quickly, often with a slight discount.

Like all quick wins it comes at a price. A growing number of consumers are aware of this trend and are looking for a discount when offered a car that has already been registered. Technically speaking, these are used cars and the motorist is the second owner.

They also distort the market. The sale of pre-registered cars in December undoubtedly pulled potential customers out of the January market. Estimates suggest that pre-registered cars make up about 10 per cent of the market.

The hope for the motor trade is that consumer confidence will pick up over the coming months and the 132-plate will arrive as the Irish economy starts to revive. Most in the industry, however, are not holding their breath.

It’s Lanigan’s Ball at IBRC

A version of Lanigan’s Ball appears to have been played out at the Irish Bank Resolution Corporation this week in relation to Neil Ryan, who is on secondment from the Department of Finance.

Ryan joined the IBRC on October 2nd as head of its market solutions unit. This division is effectively charged with working out the best way to deal with its loan portfolios in the most effective way for taxpayers.

Ryan is also a member of the banks’ group executive and reports directly to Minister for Finance Michael Noonan every two weeks.

On Thursday, the word leaking out of the bank was that Ryan’s six-month secondment was over.

It later emerged from department sources that Ryan would, in fact, be seeing out the remaining two months of his secondment.

Ryan was on leave this week, fuelling speculation about his taking an early shower at IBRC.

Tensions are believed to have boiled over early in the week between the IBRC and the department following a well-informed report in the Sunday Times last weekend about a disagreement between the two sides over the deleveraging strategy currently being pursued by the bank.

There were ructions at board level with IBRC chairman Alan Dukes firing off a missive to the department.

Ryan appears to have been caught in the crossfire, leading to the “he stepped out and he stepped in again” routine. But at the end of the day the department backed its man.

Oh, to be a fly on the wall for his return to work on Monday.

Drug strategy doesn’t work for Investec

United Drug has been busy on the acquisition front in recent times but its deal-making skills have failed to impress analysts at Investec, which last Friday initiated coverage of the Irish-listed healthcare group with a big fat ‘sell’ recommendation attached.

“Whilst United Drug’s aggressive acquisition strategy has attempted to take the company up the value chain of the outsourced pharmaceutical market, we think many of the acquisitions have brought with them a new set of risks and we fail to see a strong cohesive link between them,” Investec noted.

Ouch.

“We still see the risk to the downside given the need to turn around both faltering internal business units and its latest acquisition, Pharmexx,” the broker added.

For full year 2013, Investec is forecasting that United Drug will post a pre-tax profit of €31.2 million on revenues of €2.02 billion and it has pencilled in an earnings per share (eps) figure of 26.7 cent. By contrast, company broker Davy is forecasting a pre-tax profit for this year of €58.4 million from the same level of revenues.

Its eps projection is rather more rosy too at 40.3 cent.

United Drug chief executive Liam Fitzgerald (below) might dismiss Investec’s analysis by pointing to the 23 per cent rise in the share price over the past three months.

After all, that’s what shareholders care about most – along with a regular dividend.

Investec had a view about that, too.

“We think the recent rise in the share price has been driven by the inclusion in the UK benchmark index and not business fundamentals and so may prove short-lived,” it said.

This view is “supported” by its peer-based, sum-of-the-parts price target of 240 pence. That’s roughly 40 pence below its closing price yesterday.