It seems there might be a bit more to the slump in profitability in the car retailing sector as A.P. Eagers joined its takeover target, Adtrans yesterday in revealing a sharp fall in expected first half and 2010 earnings.
Adtrans revealed on Tuesday that it had experienced a slowdown in sales of used cars and trucks at its outlets in and around Melbourne and Adelaide.
A.P Eagers (APE) operates mostly in and around Brisbane and the Gold Coast and it seems the south east area of Queensland is also a tough place to sell cars.
The company wasn’t as specific as Adtrans was in its update yesterday.
APE told the ASX in a statement that it now expects its "2010 full year profit before tax to be in the range of $45 to $47 million as a result of subdued trading in the September quarter of 2010.
"The expected full year result is approximately 10% to 14% below the company’s record full year result of $52.5 million achieved in 2009.
"The December quarter of 2009 featured exceptionally strong trading conditions as a result of the federal government’s small business investment allowance.
"Current trading conditions in the automotive retail industry and the discretionary retail segment in general are tougher than in 2009, particularly in south-east Queensland.
"The expected full year result assumes that A.P Eagers’ takeover offer for Adtrans Group Limited (ASX:ADG) will be completed in November 2010, and is subject to the normal end of year accounting reviews and audit."
The news hit APE’s share price, which fell more than 4% to $12.50, a drop of 60c. Adtrans shares were unchanged on $3.95 (APE has bid $4 a share plus the 15c a share final dividend).
Shares in our biggest listed car dealer, Automotive Holdings fell to a day’s low of $2.27, but ended off just 2c at $2.31.
Obviously there’s no expectation that Automotive will produce a profit warning.
APE said it now controlled 80% of Adtrans, but the profit downgrade would not alter the bid.
Adtrans said it expects its results for the half year ending 31 December 2010 to be down 35% on the corresponding period in 2009. In addition, Adtrans faces expenses relating to the takeover of approximately $1.25 million.
"Whilst A.P. Eagers acknowledges the poor Adtrans result, A.P. Eagers will not be relying on it as a material adverse change under the terms of the takeover bid, but has not freed the bid from any of its defeating conditions including the 90% acceptance condition. A.P. Eagers maintains its confidence in the long-term plans and outlook for the merged business.
"Having unanimously recommended that all Adtrans shareholders accept the offer subject to a superior proposal, Adtrans Managing Director, Mr Graeme Bignell, and all other Adtrans Directors have now accepted the offer for all of their shares."
