Research, Charts & Company Announcements
Research Tree provides access to ongoing research coverage, media content and regulatory news on Lookers. We currently have 126 research reports from 6 professional analysts.
We update our forecasts following Lookers announcement on the 1st November that trading has continued to deteriorate and the now expects adj. PBT in 2019E of £16m (vs ZC forecast of £39.0m previously) equating to a c.60% EPS downgrade, and a c.50% downgrade in 2021E. The group has experienced continued headwinds across new and used cars highlighted by recent SMMT data for October. The balance sheet remains robust with significant facilities available, 2019E net tangible asset value per share of 34p backed with freehold and long leasehold of 80p per share net debt/EBITDA at the end of 2019E of 1.2x, based on our new forecasts. There is clear longterm earnings recovery potential based on previous peak EPS of 15.8p in 2016A, albeit increased regulatory costs across the sector make reaching this peak unlikely in the near term.
Lookers has issued a trading update indicating the performance of its new vehicle activities deteriorated as the important September selling month progressed. As a result, Q319 new car gross profit fell by £7m compared to the prior year. In addition, it has accelerated its site consolidation and closure plan to improve operational performance and will take a charge of £8m in H219. Despite robust performances by the higher-margin used car and aftersales segments, management cut its FY19 underlying PBT guidance by 50% to £20m. The CEO and COO are both stepping down with immediate effect. The interim executive team and full-time replacements need to focus on restoring internal and external confidence, as well as driving recovery in still-challenging markets.
H1 results from Lookers are largely as anticipated, albeit we note the interim dividend has been maintained and H1 net debt 15% down vs. the year end position. Additional costs relating to regulatory issues have been flagged, and we make minor adjustments to our 2020E and 2021E forecasts with 2019E maintained. With property assets amounting to 80p per share, and a dividend yield of 9.3%, we continue to believe deep value exists over the medium term.
Lookers has confirmed that trading in Q219 has become more difficult following a positive Q119 performance. While new car markets remain challenged mainly by Brexit uncertainty, the main trading issue has been in used cars as residual values fell through the quarter. The shares have also been affected by a formal Financial Conduct Authority (FCA) investigation into selling processes on regulated activities. Together with a £5.6m adjustment to underlying FY19 PBT due to a change to the treatment of intangible amortisation, our estimates are substantially revised. We now expect an adjusted FY19e PBT of £40.8m, leaving the shares trading on a FY19e P/E of just 5.5x. We assume the dividend is maintained in FY19 with cover of 2.0x, which may provide support, but we will review this after the board’s decision with the interim results on 14 August.
Lookers have released a trading statement this morning essentially confirming that trading has deteriorated during Q2, which is consistent with our current sector thesis. As a result, we are downgrading our forecasts to reflect this. While Lookers no doubt has issues to deal with, we do believe there is significant value at current levels trading on 6.0x downgraded 2019E EPS, a dividend yield of 8.8% with cover still at 1.9x based on our revised EPS, property assets at 78p per share and net tangible assets at 45p per share, demonstrating the deep value we believe exists.
In this note and following the SMMT June data released yesterday, we look at the key dynamics of the sector during H1 2019 and how this is likely to impact the rest of the calendar year. The dealers have challenges on several different fronts, which could lead to some earnings pressure. However, we do believe valuations have reached a trough point, balance sheets remain strong, and FCF should start to steadily build as the capex cycle for most dealers has come to an end.
Companies: CAMB LOOK MMH VTU PDG
We note the surprise RNS from Lookers late afternoon yesterday, which disclosed it was under investigation from the FCA into the Group’s sales processes. Whilst we were aware that the FCA had been reviewing motor finance for some time across the industry, the investigation was unexpected. This feels early in the process, which throws up a lot of uncertainties with the shares -25% yesterday in response to this. While we believe Lookers has a solid track record of delivery, more clarity is required in this issue before the shares can start to recover. We have previously rated Lookers as a strong operator and await further developments on this issue with interest.
Lookers has released a trading update this morning, confirming that Q1 trading was robust, but the group has faced trading pressures during April and May particularly in the used car market. We tweak our forecasts for 2019E, and now expect adj. PBT of £58.0m (vs. £64.0m previously which equates to a 9.4% downgrade). While uncertainty continues to impact trading, we believe this is factored in to the valuation at present and we continue to believe Lookers is well positioned, with a robust balance sheet and proven management team to deliver shareholders returns over the long term.
Renold plc—a leading international supplier of industrial chains and related power transmission products, announced that it will cancel the listing of the Company from the premium segment and apply for admission on AIM. Expected 06 June 2019. Alumasc Group plc, the premium building products, systems and solutions group, has announced its intention to move from the Premium Segment of the main market to AIM. Expected market cap of £33.4m. Expected 25 June 2019
Companies: LOOK PGD TLY KRM BAGR HUW TOT ACSO STR BOOM
Lookers recently delivered a credible set of 2018A results which demonstrated the robust nature of the business model in a challenging market. We maintain our 2019E headline earnings assumptions for now, but take a more conservative view of 2020E earnings, with net debt forecasts higher due to a higher 2018 base. We continue to believe Lookers is well positioned, with a robust balance sheet and proven management team to deliver shareholders returns over the long term.
Lookers has delivered a credible performance in the context of significant trading headwinds, achieving strong market outperformance across all three business divisions led by used cars and aftersales. We maintain our forecast assumptions for 2019E and beyond reflecting our more conservative market outlook. While trading headwinds persist, we continue to believe Lookers is well positioned, with a robust balance sheet and proven management team to deliver shareholders returns over the long term
We note the recent underperformance of the shares of late and believe the current price to be an attractive entry point for investors. Lookers has a long track record of delivering strong execution despite the trading headwinds. The shares are -50% since the Benfield acquisition in 2015. At the current share price, the FCF yield is in excess of 12%, with a dividend yield approaching 5% and 94% of the current market cap backed by freehold and long leasehold assets.
Lookers 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.
Lookers has announced a trading update this morning confirming they continue to trade in line with market expectations. The group has delivered a credible performance in the context of significant trading headwinds, achieving gross margin expansion new car sales and aftersales. We leave our forecasts for 2018E unchanged but downgrade 2019E and 2020E adj. PBT by 10.2% and 5.5% respectively, reflecting our more conservative market outlook. While trading headwinds persist, we continue to believe Lookers is well positioned, with a robust balance sheet, to deliver shareholders returns over the long term and a FCF yield approaching 10%.
Market conditions have continued to deteriorate in 2018 as new car registrations in September were down 20.5% YoY. Weakness in new car sales in the key month of September, ongoing cost pressures and continuing pressure from OEMs who face their own profitability challenges lead us to take a more cautious approach to our below consensus estimates. Balance sheet strength across the sector is generally robust, and in our view, we are likely to see further consolidation activity once recovery is in sight as smaller operators become more distressed. FCF yields are compelling from next year as major investment projects reach completion.
Companies: CAMB LOOK MMH VTU
Research Tree provides access to ongoing research coverage, media content and regulatory news on Lookers. We currently have 126 research reports from 6 professional analysts.
|01Nov19 07:00||RNS||Trading Update & Board Changes|
|26Sep19 11:54||RNS||Total Voting Rights|
|30Aug19 16:00||RNS||Director/PDMR Shareholding|
|30Aug19 15:59||RNS||Holding(s) in Company|
|29Aug19 07:00||RNS||Director/PDMR Shareholding|
|28Aug19 13:20||RNS||Holding(s) in Company|
|23Aug19 15:03||RNS||Director/PDMR Shareholding|
Following continued delays of a Brexit agreement, few sectors within the UK market have remained attractive to investors despite low valuations. One sector which has continued to outperform despite the political drama has been the UK video gaming sector (henceforth UK gaming), which we are fans of. We believe a combination of sector-leading growth, strong cash conversion and timely cyclical positioning support our positive view on the UK video gaming sector.
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The trade-off in the risk/reward for gold and gold mining equities is improving, as central banks push the current iteration of the post-World War II Bretton Woods financial order towards its limits.
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The bolt-on acquisition of Air Europa is expected to strengthen the group’s overall performance by reason of more synergy effects. However, the downward outlook frustrates the market.
Companies: International Consolidated Airlns Grp
We update our forecasts following Inchcape’s Q3 IMS on 7th November, and focus our attention on 2020E and 2021E estimates after the Group confirmed it was well placed to hit 2019E last week. In 2020E and 2021E we expect a more challenging market in Asia, and currency headwinds in regions such as Australia to persist and adjust our forecast accordingly. We now expect adj. PBT in 2020E of £270.0m (vs £307.1m previously) and £268.5m in 2021E (vs £320.9m previously), which triggers a c12% EPS downgrade in each year. We remain comfortable with our long-term thesis set out in December 2018 and continue to see Inchcape as a unique investment opportunity. The business continues to invest in the higher margin distribution business, and growth of this segment should act as a key factor in the re-rating in our view.
Air partner is a leading international aviation services business. The Broking division (88% of gross profit) charters airliners for commercial, private and freight customers. The near term market backdrop is challenging but longer term prospects are positive, with passenger numbers set to double by 2037. Strength of relationships in the Broking business and a portfolio approach (no single product or market dominating) places Air Partner well to navigate short term challenges. Geographic diversification (recently opening offices in the US/Asia) offers potential for market share gains, whilst a plan to grow the Consulting & Training division (12% of gross profit) should smooth the earnings profile of the Group. We see significant recovery potential in Air Partner as the refreshed Board executes its strategy.
Companies: Air Partner
Halfords (HFD) has reported 1H PBT of £25.9m against consensus of £22.8m (1H 2018/19 £30.5m) – all numbers pre IFRS 16. It has also maintained current year profit guidance, indicated investment related reduction to consensus for FY 21 and announced that it will cut the full year dividend and re-base FY 21 dividend to 12p.
Companies: Halfords Group
Flutter reported a good Q3 19 performance. Sales came in at £533m, up 9% at cc. The soft online performance (-1%) was more than offset by strong growth in the US (+67%) and Australia (+19%), both of which beat our expectations. Though retail reported another quarter of decline (-9%), the drop was less than expected. Following the good showing, we will be upgrading our estimates and target price.
Companies: Flutter Entertainment
The Pendragon share price has demonstrated resilience in the context of the wider liquidity squeeze in UK small and mid cap stocks that has recently driven a rotation in sentiment from growth to value. Whilst the group cannot be immune to wider industry pressures highlighted in the Q318 IMS, we believe the clear strategy to build its used car business and software platform will provide for a return to growth in FY19. This will be funded through strategic disposals and lower capital commitments to the new car market. This includes the potential sale of the group’s US Motor Group which would contribute to a planned £200m swing from a net debt position to a cash rich group over coming years. Whilst our Neutral stance acknowledges the negative sector sentiment that is unlikely to unwind short term, we remain alert to buying opportunities into any weakness.
Sosandar, the celebrity-endorsed women’s fashion brand, benefits from a simple and scalable capital-light online model, a fast-growing affluent customer base and a robust pipeline of new styles introduced each month. The company is achieving impressive growth across all key performance metrics and has a solid balance sheet to support its rapid expansion in the UK and, we believe, internationally over the medium term.
We are introducing our Best Ideas for 2019 and also review the performance of last year’s picks. We suggest ten solidly financed stocks with good business dynamics that ought to be considered for core portfolio holdings and six UK domestically focused stocks that our analysts believe should perform strongly in the event that uncertainties unwind. We also introduce a new style of research from N+1 Singer which presents a Company’s dynamics and metrics in a clear and concise manner and concentrates on the pivotal issues affecting that Company and an investment decision.
Companies: BCA CLIN CLG CBP DNLM EAH STU FCRM FUTR GTLY INS GLE NICL SDL SPR TRI
Arena Events Group (‘Arena’) is a leading provider of turn-key, managed solutions for event organisers with predominantly recurring revenues from an enviable footprint of Tier 1 clients arranging sporting, cultural and corporate events. With a highly experienced management team and exceptional client list the group is well placed to deliver robust organic growth with the potential to further consolidate the industry through acquisitions. We forecast c7% three-year CAGR in revenue and c14% three-year CAGR in EBITDA prior to any acquisitions. The stock trades on a 2017E P/E of 16.4x and an EV/EBITDA of 6.8x with a 2.5% yield. We see fair value of up to 99p per share and initiate coverage with a Buy recommendation.
Companies: Arena Events
Franchise Brands has reported strong H1 2019 results that are comfortably ahead of our estimates and underpin our FY2019 forecasts. Revenue increased +19% to £20.1m compared with our +5% assumption for the full year. We have forecast Group revenues of £39.8m for FY2020E, yet based on the current run rate, Franchise Brands could exceed this forecast in FY2019. This very strong momentum has been led by a reinvigorated Metro Rod franchisee base with system sales up +15% and 83% of the franchise network growing in the first six months of the year. The Group's three B2C businesses have seen an improvement in franchise recruitment and are trading broadly in-line on an EBITDA basis to H1 2018. Kemac has continued its strong runrate and benefited from a number of large one-off contracts. The year has started encouragingly and the strong H1 results firmly underpin our estimates and we now view risk on the upside.
Companies: Franchise Brands
FY’19 results are ahead of expectations beating our PBT forecast by 5%. Joules finished the year with a clean inventory position and the FY'20 trading continues to be robust irrespective of the backdrop. We have left forecasts unchanged which suggest 10.8% sales and PBT 3-yr CAGR. There are numerous new initiatives launching over the next few months that should not only drive incremental business but we see a broader leverage of the Group’s key strengths. These will encompass further licensing agreements, enhance the web platform to maximise the LTV of the Group’s 1.5m active customer database, and build upon its credentials as a leading British brand through the development of a marketplace centred around the family, home, and countryside.
Companies: Joules Group
Boohoo Group has announced the completion of the purchase of Karen Millen and Coast brands and related intellectual property, extending its offer into a new demographic and price point and cementing the Group’s status as a highly scalable, multi-branded fashion platform with the potential to be a leader in the e-commerce market globally.