Lookers' (LON:LOOK) Q3 trading update confirms trading is on course to meet market expectations. The disposal of the Parts division has completed at £120m, with £82m of the proceeds used for new acquisitions. While market fears have caused a c 40% price drop against 12-month highs for the sector, we think Lookers’ nominal discount to peers on CY16 P/E rating is unjustified given its sound trading record and earnings growth potential.
A busy nine months
Lookers’ Q3 update confirms the fundamental corporate developments of recent weeks and reaffirms that trading is in line with management expectations. The Parts division has been sold for £120m, with £82m of the proceeds reinvested in seven Mercedes Benz/Smart and three BMW/MINI franchises across the West Midlands; the group has also exited three operations that offer limited scope. Trading conditions remain sound and, although new car retail margins remain under some pressure, new car fleet, used car and aftermarket returns all show likefor- like revenue growth, generated at slightly increased margins. While recent sterling weakness ought, in theory, to make trading more difficult, most OEMs have resisted the temptation to raise prices. The impact of the earnings dilutive disposal has prompted us to edge our FY16 and FY17 underlying PBT estimates down from £80m to £78m, although current trading remains in line with earlier expectations.
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