The winter of consumer frugality appears to be drawing to a close as data indicates spending is increasing. The Society of Motor Manufacturers and Traders (SMMT) report that new car sales in the first six months of 2014 increased by 10.6% compared with the same period in 2013, and signals the best half-year total since 2005.
Rolls Royce reported record car sales, with worldwide half-year sales up 33%, and high sales are not limited to the luxury car segment. One reason for increased sales in the UK is the increasing popularity of the personal contract purchase (PCP). In 2006, about 45% of new cars in Britain were bought on “finance”. Last year this figure was in excess of 74%, according to the Finance and Leasing Association.
This car buying boom looks set to continue in the UK as the long-term demographics indicate a growing number of drivers in the UK. The SMMT has forecast car manufacturing volumes are on course to break all-time records by 2017. Growth is also expected in US and Asian markets and there are some FTSE companies that are well placed to take advantage of this growth industry:
Johnson Matthey (LSE: JMAT) is a world-leading catalyst manufacturer, and one of the three suppliers that control 90% of the market for ECT. New EU legislation is driving sales for the company as the law tightens on engine emissions, and Johnson Matthey estimates that catalyst value for light duty diesel vehicles will increase by around 20%.
The company performed well in 2013/14, particularly in its Emission Control Technologies division. Sales were up by 11%, underlying earnings per share grew by 16% and the dividend increased by 10%.
Return on invested capital (ROIC) was 20.8%.
Inchcape (LSE: INCH) is one of the leading franchised retailer groups in the UK, partnering many of the world’s best brands including Audi, BMW, Jaguar, Land Rover, Mercedes-Benz, Toyota and Volkswagen. It has shown consistent year-on-year growth across sales, operating margins and EPS, and reports four consecutive years of double-digit earnings growth.
EPS for the year ending April 2014 is 43.5p, up from 39.1p in the last period; its ROCE has been 22% for the last three years; the company has a consensus rating of Buy from analysts; and it is currently trading £6.34.00 up 25.5% on last year price and 234.3% from five years ago.
GKN (LSE: GKN) is a global engineering group, and it Driveline division is the world’s leading supplier of automotive driveline components and systems. The company shows growth across many of its markets. Light vehicle production in the first quarter is 5% higher than the comparable period in 2013.
GKN Driveline delivered a strong first-quarter result, with sales increasing 5% to £885 million; organic sales increased 14%; trading profit was £71 million and trading margin was 8.0% (2013: 6.0%).
