Shares round-up: Computacenter, Pendragon, The Gym Group

The FTSE 100 was corrected by housebuilders today, but Computacenter stole the show.

Housebuilding stocks put the FTSE 100 Index back on the right path today, although second-tier Computacenter (LSE:CCC) stole the limelight after another upgrade to profit forecasts.

The IT services firm, which has benefited from a surge in demand for equipment to enable home working, saw its shares surge another 11% to a fresh record in the FTSE 250 index.

Computacenter said 2020 trading was on course to be materially above the expectations set out as recently as mid-July, when shares also surged after an upgrade to forecasts.

Investors will have to wait until next Wednesday's interims to find out what is driving the performance. But as well as home working trends, it is likely corporate and public sector customers have increasingly turned to the company at a tricky time for their IT functions.

Shares slumped to below 1,000p at the height of the market sell-off in mid-March, but have more than doubled since then to reach a high point in today's session of 2,232p.

Elsewhere, value stocks were in favour in the FTSE 100 index as risk appetite finally improved in the wake of four straight sessions on the back foot, including Tuesday's 1.7% slide.

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ITV (LSE:ITV), which is being replaced by B&M European Value Retail (LSE:BME) in this month's top-flight reshuffle, added 4%. Engine maker Rolls-Royce (LSE:RR.) recovered 5% to 217.1p after sliding 14% in yesterday's session to the lowest level since October 2008.

The risers board also featured a number of housebuilders after Nationwide reported that house prices rose 2% in August and Barratt Developments (LSE:BDEV) said that private reservations from July to the end of August were ahead by 38% year-on-year due to pent-up demand.

While there was no dividend from Barratt, its shares still topped the FTSE 100 risers board with a gain of 7% or 34.2p to 537.8p. Persimmon (LSE:PSN), Berkeley Group (LSE:BKG) and Taylor Wimpey (LSE:TW.) all improved by 4%, although the quartet all have a long way to go to revisit levels seen in February.

Among smaller stocks, car dealership Pendragon (LSE:PDG) impressed investors with an updated strategy or “roadmap” under which it is targeting underlying profits of £85 million to £90 million by 2025. It made a loss of £16.4 million in 2019 and a profit of £47.8 million the year before.

The plan features a greater focus on the used car market, including the creation of eight larger purpose-built sites at an average cost of £7.5 million per location. They will provide stocking points, customer retail and collection sites and fulfilment hubs for home delivery.

Pendragon believes there is an annual used car market of around three million for it to target, which is larger than the total new car market. It also plans to speed up its digital innovation and grow its Pinewood division, where its dealer management system and customer relationship management tool is achieving compound revenues growth of 10%.

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Analysts at Berenberg welcomed the strategy update, noting that recently announced cost savings worth £35 million a year meant Pendragon was already half way to the “ambitious” 2025 profits target put in place by new chief executive Bill Berman.

They added:

“If management achieves the cost savings, market dynamics recover (as they appear to be doing) and operational changes are implemented, Pendragon could well surpass its targets.”

Pendragon shares rose 3% to 8.21p, compared with 10p seen after the re-opening of its dealerships in the wake of the Covid-19 lockdown.

The Gym Group (LSE:GYM) also updated investors on its rebuilding progress after the pandemic caused the closure of all its 183 sites during the second quarter. This disruption resulted in a £37 million fall in half-year revenues, with adjusted earnings down £22 million to £1.7 million.

This was slightly better than City expectations, while the low-cost operator also said it has been cash flow positive since re-opening gyms in England towards the end of July. 

Total membership has improved to 676,000 by the end of August after the number of new joiners improved 30% year-on-year in the first five weeks of trading. While overall membership is 17% lower than a year earlier, the company said the figure demonstrated confidence among members about using its gyms.

It added that it had seen a change in usage patterns by members since re-opening:

“A significant reduction in evening peaks is enabling us to operate within the new government guidelines with only minimal waiting times for members even in our busiest gyms.”

Shares were flat at 156.2p, although both Numis Securities and Peel Hunt think the shares have the potential to double to 300p or more.

The latter said:

“We believe The Gym Group is the best capitalised UK gym operator, yet, on 6.6 times 2022 underlying earnings, it trades at a big discount to its international peers. Recovering membership numbers should be the catalyst for the shares.”