Motorpoint shares dive after firm warns economic volatility will hit used car sales

Motorpoint Group has warned that deteriorating economic conditions will hit used car sales ‘in the near future’.

The car dealer chain said consumer uncertainty, rising inflation and interest rates and global supply chain problems are “significantly impacting” the UK’s used car market.

It believes that the current macroeconomic backdrop will continue to negatively impact trading performance for the remainder of the fiscal year.

Motorpoint Group Shares fell 15.4 per cent to £1.51 on Thursday afternoon, making them the biggest faller on the FTSE All-Share Index.

The group also reported that profits fell to around £3 million in the six months ending September, down more than £10 million from the previous year, as a result of investment in new stores and technology.

This is despite the Derby-based company revealing that its total turnover rose by 30 per cent to a record first half of around £785 million.

Rising prices accounted for much of the growth, as widespread semiconductor shortages dampened new vehicle production, fueling interest in older cars.

Motorpoint further attributed the increase in sales to increased demand for premium models and the opening of new stores, with the most recent launch in Edinburgh and a 19th store opening later this month in Coventry.

The company was forced to close its car dealerships during the UK’s national lockdown periods, which inevitably negatively impacted sales.

Q: Motorpoint Group revealed total sales in the six months ending September are up 30 per cent on the previous year to a record £785million

After restrictions began to ease, the company achieved record sales in April and May 2021, as demand was fueled by Britons who had built up extra savings and were reluctant to use public transport.

Revenues in the corresponding two months of this year were weaker, given the release of pent-up demand when trade restrictions were initially eased, although sales were stronger year-on-year in the following three months.

In September, however, they were down about 9 percent as the deteriorating economic outlook and the cost of living crisis hurt consumer confidence.

Motorpoint told investors: ‘Macroeconomic conditions continue to deteriorate, leading to increasing consumer uncertainty, and it is therefore likely that this will reduce used car sales volumes in the UK for the foreseeable future. ‘

“While the company does not provide specific earnings estimates, it believes these macro factors will continue to challenge financial performance in FY23, the magnitude of which is difficult to predict.”

Analysts at Liberum have halved their estimate of pre-tax profits for the full year to £7m due to the slowing trading environment and projected growth in interest costs.

Motorpoint has said it will remain cautious amid these headwinds, yet make strategic investments to take advantage of a “weakening competitive landscape” in the longer term.

Russ Mould, investment director at AJ Bell, said: “The market will not be reassured by Motorpoint’s lack of understanding of what next year could look like.

“Management deserves some credit for holding onto the nerve and continuing to make strategic investments to increase market share, although investors may look for a gear change at some point to ensure the company has a healthy buffer, while the road ahead is unlikely to be smooth. ‘