The fragile condition of the British car industry has still been commanding the headlines in the British media. Recent announcements have included Honda’s intention to close its decades-old plant in the south-western town of Swindon; Jaguar Land Rover axing thousands of jobs in the UK; and Nissan switching planned production of its X-Trail model from its north-eastern base of Sunderland to Japan.
This is just a tip of the iceberg as the implications of Brexit force the auto industry to convulse. The political and economic uncertainty, and the prospect of severe supply disruption, created by the UK’s planned withdrawal from the European Union in the short term and long beyond is clearly too much for many car manufacturers to bear.
Brexit has already played havoc with the industry over the past year as individuals and businesses have both held off on making big-ticket car purchases, resulting in plummeting unit sales across the country. But this is not the only problem shaking car demand right now; the reduction of government incentives for electric vehicles has hit sales of these models hard, while a lack of clarity over the future of the diesel engine are also hampering overall car sales.
So things are looking pretty grim for those involved in car industry right now. Accordingly I’m expecting another less-than-reassuring trading update from Lookers (LSE: LOOK) when full-year results are unsheathed on March 13.
Last time out, the car retailer advised that new auto sales had tipped 7% lower in the nine months to September, and while the supply-side issues of earlier in the period have eased, I’m not expecting demand to have torn higher since. I’m also fearing what latest numbers on demand for the company’s used units will show — turnover here rose 10% between January and September — given the run of bad data in recent months on the health of the pre-owned segment.
For these reasons I’m not tempted to buy Lookers despite its low valuation, a forward P/E ratio of 7.1 times, nor its inflation-beating 4.1% corresponding dividend yield. Indeed, given the share price charge that the retailer has enjoyed since the turn of 2019, I fear that a sharp investor exodus could be on the cards next week.
One I’d buy
I’d be much, much happier to splash the cash on Prudential (LSE: PRU) before full-year results of its own are also released on Wednesday.
I’ve long lauded the FTSE 100 firm because of the pace at which business in the promised lands of Asia is exploding. Last time it updated the market in August it reported an 11% rise in new business profit in these exciting growth regions during January to June, with eight countries within this region printing solid double-digit-percentage rises.
Economic conditions in Asia might have been a bit bumpier more recently, but given the chronic disparity between the range of financial products on offer here and the demands of an increasingly-wealthy and populous continent, I’m expecting Prudential to have continued impressing in the second half.
Right now the business trades on a dirt-cheap forward P/E ratio of 9.2 times and carries a market-beating 3.6% corresponding dividend yield. This provides plenty of scope for Prudential’s share price to ignite next week, in my opinion, and this makes it a white-hot buy in my book.
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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Prudential. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.