Another impressive year
Lookers (LONDON:LOOK) has experienced another impressive year. Underlying pre-tax profits of £65m are up by 35% over the previous year and almost double the record £34m earned in 2011. While the trading climate has become more challenging in recent months, Lookers has the management and strategy to continue outperforming its sector.
Profits up by 35%
Lookers has responded impressively to a positive trading climate, lifting underlying pre-tax profits by 35% to £65.0m, comfortably above market estimates. Progress was delivered in each core segment of the business – new cars, used cars, aftermarket and specialist parts – while pre-tax margins were lifted above the magic 2% barrier. The dividend was raised by 10%.
Strategy for next stage of growth
A jump in fleet sales has disguised a modest reversal in the retail new car market in the early part of 2015, making the trading climate more challenging. However, the group has started the year in line with management expectations, has encouraging order books for the important month of March and looks set to deliver further progress. Investment is being stepped up to enhance the group digital presence and to upgrade many of the group’s franchise facilities. Meanwhile, with industry dynamics favouring the larger dealership groups, we expect to see an increasing number of potentially lucrative acquisition opportunities emerging over the next two to three years. The group’s unique Parts division continues to perform well under challenging conditions and offers stronger medium-term potential.
Ample facilities
Net borrowings of £51.9m represent 20% of shareholders’ funds. The increased investment, mentioned above, can be financed from operating cash flow. Meanwhile, with banking facilities totalling £132.5, plus an additional £30m available for acquisitions, the group looks well able to meet foreseeable needs.
Valuation: Attractions not recognised
A re-rating in 2013 responded to the improved fortunes of the UK motor retail sector. However, the resilience of the market and the quality of management in the quoted dealership groups have yet to be fully recognised. Lookers’ impressive record is not borne out by a modest 2.5% discount rating (for 2015e) to the average of the other dealership groups.
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