I noticed that FTSE All Share incumbent Pendragon (LSE: PDG) has seen its shares soar in the past couple of weeks. What’s caused this spike and should I buy some shares? Let’s take a closer look at events.
Car retailer
Pendragon is one of the largest car retailers in the UK, operating close to 150 sites across the UK. It has deals in place with some of the biggest and best car manufacturers. These include BMW, Mercedes Benz, and Ferrari to mention a few. Its subsidiary, Pinewood Technologies, provides software-as-a-service (SaaS) solutions to the automotive industry, specifically dealer management software.
So what’s happening with Pendragon shares? As I write, they’re trading for 35p. Just two weeks ago, the shares shot up by 105%, from 17p to current levels.
Positive results and a new dawn
To start with, Pendragon released half-year results for the period ended 30 June 2023 that were impressive. Macroeconomic challenges, including soaring inflation and supply chain problems, have hampered many FTSE stocks. Despite this, the business managed to increase pre-tax profit by over 10% compared to the same period last year. Furthermore, revenue increased by 13% and it managed to boost its balance sheet with plenty of cash too. I’m usually buoyed when a business has boosted its balance sheet. This is because growth initiatives can be supported and investors can be rewarded.
The bigger news in my opinion is that Pendragon confirmed an offer from American business Lithia Motors for a strategic partnership. This offer is close to being accepted by the board. Lithia would purchase Pendragon’s motor retailing and leasing business for close to £400m as well as 24.5p per share to existing shareholders. In addition to this, Pendragon would become a pure play tech business through its Pinewood subsidiary. The business will continue to be listed on the FTSE under a new name. Furthermore, Lithia would inject £30m into this new business to help drive growth and boost market presence.
A FTSE stock I’m watching carefully
My view on Pendragon shares is generally bullish. However, I want to know more about the new business that will emerge before I do anything further.
What I do know is a bit about Pinewood’s position in the market at present. Pendragon’s SaaS business is often overlooked due to the strength and brand power of its retail car business. My research indicates Pinewood is one of the leading automotive SaaS businesses. Its dealer management software is extremely popular and trusted by over 50 brands in the car industry.
With its present popular and burgeoning product stack, as well as £30m investment from Lithia and the US exposure it will help provide, Pinewood, or whatever the new business will be called, could be set to soar to new heights.
For now, I’ve decided I’m going to keep a close eye on developments with Pendragon shares. Any FTSE stock that soars over 100% in a two-week period gets my attention. However, that doesn’t necessarily mean I’ll rush to buy the shares.
