Inchcape cuts operating margin outlook to 5.5% as Australian business weakens
Key Facts
Car distributor Inchcape cut its adjusted operating margin forecast for fiscal 2026 to around 5.5% after weakness in its Australian business weighed on its profitability outlook. The company said in a third-quarter trading update that the downturn in the Australian market prompted it to revise its annual guidance. It had targeted a full-year margin of around 6%, according to its previous guidance published with its July results. In Australia, Inchcape's volumes fell 50% in the third quarter of 2026, marking a sharp contraction in its business in that market. That came as total Australian car market volumes rose 1% over the same period, according to the company's update. The margin forecast cut thus coincided with a decline in Inchcape's volumes in a market that recorded overall growth.
Inchcape linked the rapid shift towards new energy vehicles in Australia to what it described in its update as "fuel-related disruptions". Its first-half 2026 results had already shown pressure on profitability in its Asia-Pacific operations, where the adjusted operating margin stood at 3.5%. At group level, the adjusted margin was 5.3% in the first half, down 40 basis points from the corresponding period, according to the company's results published in July. Management's measures to address Asia-Pacific performance included cost cuts, among steps announced with those results. The company also announced its exit from 13 distribution contracts in the region, describing the contracts covered by the move as "non-core and dilutive to profitability". The announced measures thus combined cost reductions with exits from distribution contracts that had weighed on the regional business's profitability.
Inchcape's update was preceded by a downgrade of its shares by UBS amid weak volumes and a delayed recovery in its Asia-Pacific business. According to a report published by Investing.com on 7 October 2026, the bank cut its recommendation on the stock from "Buy" to "Neutral". It also lowered its price target to 750 pence from 990 pence. The bank's review extended to its adjusted earnings per share estimates for 2026–2028, beyond the current fiscal year. Cuts to those estimates ranged from 2% to 7%, according to the same report. The report linked the earnings estimate revisions to weak volumes and a delayed recovery in the region, pressures that had shaped the bank's assessment of the stock before the company announced its new guidance.
The margin outlook revision follows a first half in which Inchcape recorded an increase in revenue, according to results announced in July. Reported revenue rose 9% from the corresponding period to 4.7 billion pounds in the first half of 2026. The company recorded organic revenue growth of 5% for the same period. Despite cutting its operating margin forecast, Inchcape said in its third-quarter update that it now expects adjusted earnings per share growth of around 10% for the full fiscal year 2026. Over the medium term, management reiterated its confidence in achieving its target of a compound annual growth rate in earnings per share exceeding 10% through the end of 2030.