The Investment Column: Vardy ready for revolution

The British car industry is undergoing a quiet revolution. Manufacturers want to sell cars through fewer, large regional-based dealerships to cut distribution costs. Ford for example is halving its dealership network. Vauxhall and Rover are following suit. The days of individual dealerships look numbered.

For the larger groups this shake-up is bound to create winners and losers. The revolution is still in its early days but Reg Vardy has already emerged as a winner.

Manufacturers are picking dealers with the best records for proving they can regularly hit targets for shifting cars. The favoured dealers must also have solid finances so they can to afford to invest heavily in acquiring new sites and building new premises. Reg Vardy fits the bill on both accounts.

It has a good reputation in the trade and gave itself the room to manoeuvre financially after raising pounds 27m in last July's rights issue.

Now it is picking up new dealerships across the country with anybody from Ford to Nissan. It added another 10 in the past year to bring its total to 50 and should get up to 60 dealerships within the next 18 months.

The group has experienced growing pains. Together the new dealerships, most of which are on greenfield sites, lost pounds 1m and will do well to break even this year. Even so profits for the year to April rose by a fifth to pounds 17.1m.

And its investment, which reach around pounds 40m, should begin to bear fruit over the next few years.

Strong expansion prospects are underpinned by a buoyant car market, fuelled by the consumer boom.

Vardy's car sales increased by 17 per cent against a market rise of around 5 per cent while used car sales were up by a fifth.

Panmure Gordon forecasts profits of pounds 19.2m this year, putting the shares, which slipped 12.5p to 287.5p, on a forward rating of 12. Good value.