Shares in Inchcape (LON:INCH) reversed after the global automotive distributor cut its FY26 adjusted operating margin guidance from 6% to around 5%. The FTSE 250 company blamed the downgrade on persistent underperformance in Australia, where market share gains from Chinese automakers is a headwind.
Despite lower group operating margins, Inchcape still expects to generate FY26 adjusted EPS (earnings per share) growth of circa 10%, supported by share buybacks. Furthermore, the firm left its organic volume growth forecast unchanged at the top end of a 3% to 5% range.
Australia struggles continue
In its Q3 trading update, Inchcape flagged further underperformance in Australia. Volumes fell 50% against TIV (total industry volumes) growth of 1%. In turn, this dragged Inchcape’s APAC (Asia Pacific) volumes down 37% in the quarter, against regional TIV growth of 5%.
A ‘rapid shift’ towards electric and Chinese-made vehicles in the Australian automotive market has negatively impacted Inchcape, whose portfolio is skewed towards petrol-powered brands such as Subaru.
| Revenue – year-on-year growth | Constant FX | Organic | Reported |
| Q3 | Q3 | Q3 | |
| Group | 5% | 1% | 7% |
Source: Inchcape, Q3 trading update
Inchcape warned current challenges in Australia are expected to continue, diluting FY26 margins. ‘Australia remains a challenge – our key brand has underperformed, with deteriorating competitiveness in a rapidly-evolving market,’ conceded CEO Duncan Tait.
‘We are taking further decisive action there, alongside our existing restructuring activity. We are confident these actions will improve our business in Australia over time, but we expect the current challenges in that market to continue impacting our performance there.’
Exhibiting resilience
Inchcape’s Q3 performance proved resilient elsewhere across the group. The London-headquartered company’s continued strong momentum in the Americas was underpinned by volume growth across its brand portfolio.
And in Europe & Africa, volumes revved up 21%. This was fuelled by broad-based growth across core brands, supported by recent contract wins and acquisitions in Iceland and Bulgaria. ‘In addition, we made progress with our management actions to support our businesses in Asia,’ stressed Tait.
Back in March, we highlighted ongoing APAC challenges as a big concern for Inchcape shareholders. Following the latest sell-off, the shares definitely look cheap on single digit price-to-earnings ratios for FY26 and FY27. Nevertheless, we would continue to avoid the stock for now.
Organic growth is sluggish and the recovery in APAC is taking longer than expected. The firm’s near-term prospects have been dented by a rapid shift towards electric vehicles in Australia, Hong Kong and Singapore, where Inchcape is underexposed to the brands gaining market share.
On the positive side of the ledger, Inchcape has a strong balance sheet. In addition, the company continues to make value-enhancing bolt-on acquisitions and win new contracts. And this means the longer-term outlook is more positive.
