Estimates raised again
The positive nature of the Lookers IMS should come as no surprise in the light of positive comment from other dealership groups and the strong performance of the new car market. Lookers (LONDON:LOOK) has an impressive trading record, is cash generative and has a unique position in the automotive aftermarket. These qualities warrant a higher rating.
Positive IMS
The Lookers spring IMS reports positive trading during the first quarter of 2014. A 25% increase in new car sales is comfortably ahead of the 18% rise in UK retail market over the period, while a drop in its share of the fleet market is compensated by the higher margins stemming from its more selective approach to the segment of the market. Meanwhile, used car sales are up by 8%, in a relatively flat market, and aftermarket revenues are running 9% higher on a like-for-like basis. Action has been taken over the past 18 months in the Parts division, with the group now building on last year’s recovery – a 6% rise in sales has been delivered at sustained margins.
Estimates increased
Our earlier fears that increased expectations at the OEMs might lead to pressure on margins appear to have been avoided so far. While overall gross margins may be down slightly, this reflects the mix of the business (higher vehicle sales), with each key segment of the business showing either sustained or increased returns. With the market still looking positive, we have increased our 2014 estimate for underlying pre-tax profits by 11% to £56.6m. We have also made a positive adjustment to our 2015 estimate raising it from £54.6m to £59.1m.
Working capital under tight control
Continued tight control of working capital is cited behind better than expected borrowing figures. We now look for year-end debt of just over £60m; this compares with our earlier target of £65m and facilities totalling £140m.
Valuation: Qualities not recognised
The prospective P/E ratio for 2014 and 2015 of 12.5x and 12.1x earnings is slightly below the simple average of 13.3x and 12.3x of the other three large quoted dealership groups. Lookers’ consistent record and its key position in the aftermarket suggest a quality of earnings that is not recognised.
To Read the Entire Report Please Click on the pdf File Below