Leading global automotive distributor Inchcape’s (INCH) resilient business model and growth potential remain underappreciated by investors. Now is a great time to buy the shares, which are cheap relative to history.

Through its ‘Accelerate’ strategy, the FTSE 250 company is helping to consolidate a fragmented global market by leveraging its geographic footprint and relationships with car makers. It has scope to penetrate more territories with a wider range of automotive brands. Inchcape’s bumper surplus cash flows can also fund further acquisitions or share buybacks.

Sometimes lumped in with car retailers operating on skinny margins and with exposure to the vagaries of the economic cycle, Inchcape is a different beast.

It is a global business with operations in more than 40 markets and an increasing focus on higher margin and resilient distribution activities.

Its responsibilities span everything from product planning and pricing to import and logistics, marketing and the management of physical sales and aftermarket services.

Furthermore, Inchcape’s regional exposure is shifting further towards fast-growing and complex emerging markets, everywhere from Argentina, Indonesia and Thailand to Macau, Chile and Kenya.

The company works with over 50 brand partners, ranging from BMW and Toyota to Land Rover, Peugeot, Suzuki and Geely. It helps car manufacturers to keep up with the rapid pace of industry change through the combination of market expertise, unique technology and advanced data analytics.

Inchcape’s shares revved higher on well-received first half results (27 July) showing revenue up 45% to £5.6 billion and a 35% adjusted pre-tax profit growth to £249 million. The impressive numbers reflected strong organic growth supplemented by acquisitions, notably Derco, which has transformed Inchcape’s market position in the Americas, a region with high economic growth and low motorisation rates.

During the half-year period, Inchcape concluded 11 new distribution deals or transactions, including a global agreement with Great Wall Motors that has significantly increased Inchcape’s electric vehicles offering.

With positive momentum at its heels, Inchcape expects full year 2023 pre-tax profits to be towards the top end of the £470 million to £506 million consensus range. Investment bank Jefferies is looking for £499 million pre-tax profit this year, £549 million in 2024 and £604 million in 2025.

Based on this year’s 86.2p earnings per share estimate and a forecast 34.5p dividend, Inchcape trades on a prospective price to earnings ratio of 9.5, low relative to historic multiples, and with a 4.2% yield.

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