Inchcape shares plunge as soft APAC demand drives sales drop in H1

Inchcape PLC shares dropped 8.5% after reporting a challenging first half, with total revenue down 4% and adjusted operating profit decreasing 12% at constant currency, primarily driven by a 15% organic revenue decline in Asia-Pacific due to softer premium vehicle demand. The car distributor also cut its interim dividend by 16%. Despite these headwinds and Jefferies projecting a 2% decline in consensus FY25 PBT estimates, Inchcape notably maintained its full-year guidance, anticipating earnings per share growth.

Analysis

Inchcape PLC experienced a significant 8.5% share price decline following the release of weak first-half results, which were heavily impacted by deteriorating conditions in the Asia-Pacific region. Total revenue for the period fell 4% to £4.32 billion, while adjusted operating profit declined a more substantial 12% at constant currency to £247 million. The primary driver was a 15% organic revenue contraction in its Asia-Pacific segment, which accounts for over a quarter of total sales, with premium vehicle volumes plummeting by 40% in Indonesia and 15% in the Philippines. This operational weakness prompted a 16% cut to the interim dividend, signaling pressure on near-term cash flow. Further compounding concerns, Jefferies analysts forecast a 2% decline in consensus PBT estimates for FY25, citing ongoing FX headwinds. In a critical counterpoint to the negative performance, Inchcape's management maintained its full-year guidance, projecting growth in earnings per share, which creates a significant disconnect between current results and future expectations.

Key Decisions for Investors

• Investors should weigh the severe first-half performance and 16% dividend cut against management's conflictingly optimistic full-year guidance for EPS growth.
• Closely monitor for signs of a second-half recovery in the Asia-Pacific premium vehicle market, as the 40% volume drop in Indonesia represents a major headwind and a key variable for meeting targets.
• Consider that the 8.5% share price drop may offer a value entry point, but this is contingent on the high execution risk of the company meeting its maintained guidance.
• Factor in the potential for further negative analyst revisions and persistent FX headwinds, as highlighted by Jefferies' forecast for a FY25 PBT downgrade, when modeling future earnings.