Record H1 results for Lookers PLC

UK automotive retailer and distributor Lookers PLC have released record results for the first half of 2016, recording significant growth in revenues (+33%), operating profit (+20%), earnings (+17%), interim dividend (+20%). Zeus Capital welcomed the results, saying they had beaten its forecasts by 10%.

The announcement also confirmed the disposal of the companies' parts division and acquisition of Drayton Motor Group, following the group's strategy and to focus on the higher growth divisions of the business.

Zeus covered the results this morning, saying they were encouraged by the overall performance of the business:

"We are encouraged by the strong LFL sales growth across all parts of the business, good operational progress made during the period and exceptional cash generation leading to a strengthened balance sheet."

Lookers beat Zeus' forecasts by 10% in Revenues (£2.3bn), adjusted EBIT (£59.1m), adjusted EPS beat: "due to a slightly lower tax charge", and beat their interim dividend forecast by 16%.

Car sales

Lookers performed well in both new and used car sales:

"New cars saw a Q2 acceleration of +12% LFL revenue growth, albeit this was driven by increased focus in the fleet sector, with gross profits +4% on a LFL basis. Used cars continued the strong momentum seen in Q1 with LFL revenue growth being maintained at 7% and gross profit growth at an impressive +12%."

Forecasts

According to Zeus, the core business is trading well with the company has a healthy order book for September, but the disposal of its parts division and the acquisition of Drayton means gaps in FY16E and FY17E PBT:

"...we believe there will be a c£2m - £3m gap in FY16E at the PBT level, due to the timing of the transaction and minimal contribution from the Drayton acquisition. Similarly we had forecast £13m PBT from the parts business in FY17E and expect £6m from the in Drayton acquisition, leaving a £7m shortfall. We note however management highlight a potential small acquisition in FY17E and realistically expect a c£3m - £4m gap in FY17E PBT following further potential transactions."

As a result, analyst Mike Allen says his firm are leaving its forecasts unchanged until October, when the transactions are complete and the trading picture for 2017E becomes clearer.

Zeus say Lookers PLC shares represent good value at present and seem oversold at current prices:

"Given the strength of the balance sheet and management track record we believe they are well positioned to continue to acquire businesses at a time in the cycle where there may be opportunities to acquire businesses at good value."

N+1 Singer commented that investor sentiment remains more cautious than recent company announcements would imply, despite a post Brexit bounce in share prices:

"Since then we have had reassuring interims from Marshalls Motors (Not Rated) yesterday and Lookers today. Both reiterated full year guidance and suggested new car orders for the important September month are building nicely, whilst acknowledging that the referendum has created a degree of uncertainty yet to be reflected in customer activity... this week’s announcements certainly provide comfort."

Andy Bruce, Chief Executive of Lookers, said:

"We have worked hard at pursuing the strategic priorities for the business which we laid out in March; having the right brands and locations alongside excellent execution. Through careful portfolio management and a focus on delivering the best service for our customers, our motor division has continued to grow strongly and has delivered record results. The parts division has also performed well... 

The sale of the parts division is a great opportunity to shift our strategy and to focus on the higher growth division of the business. We are delighted to have already announced the acquisition of Drayton Motor Group, which we believe fits our acquisition criteria of selecting excellent businesses which will be of strong financial and cultural benefit to the group."