Lookers (LON:LOOK) maintained its outlook for the current year, notwithstanding supply-side disruption that created volatility in new car markets in Q318. Used car and aftersales activities remain healthy and Q318 trading was ahead against a strong Q317. There are signs of stabilisation in new car markets in Q418 and Lookers expects to deliver against market expectations for the full year. However, a more cautious view as Brexit looms leads us to reduce our FY19e EPS by 6%. Nevertheless, the undemanding rating remains supported by an attractive yield.
Robust trading performance in volatile Q3
When considering motor retailers, investors’ attention tends to be drawn towards New car performance, despite the fact that for Lookers two-thirds of gross profit is generated by the higher-margin Used and Aftersales segments. Both of these businesses continued to trade healthily through Q318. Margins in New cars actually improved, despite a sharp drop in sales and volumes. Q318 new car demand was highly volatile due to the introduction of the Worldwide Harmonised Light Vehicle Testing Procedure (WLTP) emission regime on 1 September. For the first nine months, Lookers saw new car revenues fall 7%, in line with the UK market, and gross profit fell by 5%. Used car revenues and gross profit grew 10%, and the high-margin Aftersales activity grew gross profit 6% on revenues up 5%.
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