Lookers - Signs of progress despite challenges
With the new car market still challenging, the appointment of a new CEO does not automatically solve Lookers’ problems but does provide some encouragement. Mark Raban has credentials in the automotive retail sector and already appears to have been setting about resolving issues on the financial front. The better-than-expected year-end net debt position provides a reference. In 2020 we expect more efforts to improve the portfolio as he seeks to reset the strategy, optimise performance and driver Lookers forward.
06 Feb 20
LIBERUM: Lookers - FY19E in line, strong cash, new CEO
There are some encouraging signs of stabilisation in Lookers' FY19E trading update, with no change to underlying PBT expectations and a better than expected net debt performance. Mark Raban (CFO) has been appointed as CEO, which we view positively.
05 Feb 20
Lookers has released a Q4 2019E trading update this morning, confirming a continuation of the challenging trading conditions in the new car market, with used and aftersales seeing more stable trading patterns. The group has successfully reduced net debt, primarily through the disposal of 4 freehold sites and the closure of a number of underperforming franchises and effective working capital controls. The balance sheet therefore has become more robust with significant facilities available. The 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 now expected to be <1.0x. Mark Raban will become CEO with immediate effect, with Cameron Wade (Audi Franchise Director at Lookers since 2016) becoming COO. The search for a new CFO will commence shortly.
05 Feb 20
Finding the floor
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.
06 Nov 19
Lookers - New retail sales declined in Q3
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.
05 Nov 19
LIBERUM: Lookers - Q3 profit warning
Lookers has seen material weakness in its Q3 new car sales and margin performance. The market has clearly been tough and brand exposure has not helped, but there are deeper operational issues at play here which have resulted in the CEO and COO stepping down.
01 Nov 19
LIBERUM: Lookers - H1 in line, no change to FY19E PBT, but 5% cut to FY20E
H1 underlying PBT is in line with 12 July guidance and there is no change to our FY19E underlying PBT. The cash costs of improving processes for regulated activities will be £10m with £3m pa of ongoing/underlying costs from FY20E.
14 Aug 19
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.
14 Aug 19
Lookers - Used-car trading impacts in Q2
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.
24 Jul 19
LIBERUM: Lookers - Used car margin pressure in June
On the back of today's profit warning, we cut our FY19E PBT by 31%. The market is clearly tough, but Lookers has seen a series of downgrades which suggest that it has lost some of the momentum which led to a track record of outperformance.
12 Jul 19
Tougher trading in Q2
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.
12 Jul 19
Half time report
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.
LOOK CAMB MMH VTU PDG
05 Jul 19
LIBERUM: Lookers - FCA investigation
Lookers announced yesterday that it had identified control issues in the sales process of regulated activities which are to be investigated by the FCA. The already weak share price fell >20% and the shares now trade on a 4.7x CY19E PE with a FY18 NAV of £399m and freehold/long leasehold property of over £300m (vs market cap of £208m).
26 Jun 19
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.
26 Jun 19
LIBERUM: UK Small & Mid Cap Dispatches
Support Services - The 4 S's, DMGT, Galliford Try, CapCo, Spirent, Lookers, Equiniti, SMID Market Highlights
LOOK GFRD CAPC SPT AA/ BAB BBY COST CPP EQN FOUR GFTU HSS HSV HWDN KIE KLR MGNS MIND MTO PAGE PAY RPS SMS STAF STEM TPK XPS AHT ECM HAS RWA SRP SHI SDY SNN DMGT
31 May 19
LIBERUM: Morning Comment
Support Services - The 4 S's, Outdoor Agencies Video, DMGT, Galliford Try, Mining Update, CapCo, Spirent, Lookers, Equiniti, Market Highlights
LOOK DEC SAX GFRD CAPC SPT EQN AA/ BAB BBY COST CPP FOUR GFTU HSS HSV HWDN KIE KLR MGNS MIND MTO PAGE PAY RPS SMS STAF STEM TPK XPS AHT ECM HAS RWA SRP SHI SDY SNN DMGT
31 May 19
AGM trading update
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.
31 May 19
Small Cap Feast
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
LOOK PGD TLY KRM BAGR HUW TOT ACSO STR BOOM
31 May 19
Long term value
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.
19 Mar 19
LIBERUM: Lookers - Resilient trading, but a 12.5% cut to FY19E PBT
Following FY18 results, we cut our FY19E adj. PBT by 12.5%. Only 4% of this relates to trading; the remainder is due to the planned reclassification of £5.6m of intangible amortisation from reported to adjusted PBT.
14 Mar 19
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
13 Mar 19
LIBERUM: Motor Retailers - Initiations - Cash and consolidation
Global OEMs in the motor industry are facing ‘sweeping changes’ and a margin crunch. We think that supply side dynamics will shape the future of UK motor retailers more than the vagaries of consumer demand. The dealer groups with the strongest balance sheets and best track records will drive consolidation, as well as improving sales and profit densities. With capex peaking, FCF will improve materially, giving plenty of firepower for deals and shareholder returns.
LOOK MOTR PDG VTU
04 Dec 18
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.
30 Nov 18
Lookers - Maintaining performance
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.
09 Nov 18
Q3 trading update
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%.
07 Nov 18
Supply pressure building
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.
LOOK CAMB MMH VTU
05 Oct 18
Lookers - Looking to the future
Along with its peers, in H118 Lookers continued to be challenged by market conditions, which returned to a more normal sequential development but meant that Q1 profitability was lower than in the prior year. With new and used car markets now appearing to have stabilised, management appears confident that the impact of the new vehicle testing regime is likely to be neutral across H218. With a continued focus on operating cost control, H2 profitability should recover strongly to provide a more normal H1:H2 seasonal split than was seen in 2017. As a result, we maintain our PBT and EPS forecasts.
24 Aug 18
A game of two halves
Lookers has released interim results this morning. Adjusted PBT and EPS is -14% YOY, we believe this was anticipated following a challenging period in the industry. We upgrade our forecasts and move our forecasts towards the consensus average. We continue to believe the shares look oversold, particularly in the context of its balance sheet flexibility, undemanding valuation and progress delivered to date based on strong management execution across all areas of the business.
15 Aug 18
Execution remains strong
Lookers have this morning released a trading update for the three-month period to 31 March 2018, essentially confirming the group continues to trade in line with expectations and is seeing good trading momentum, particularly in used and aftersales. The group has a strong balance sheet, supported by positive operational cash flow. We continue to believe the shares look oversold, particularly in the context of its balance sheet flexibility, undemanding valuation and progress delivered to date based on strong management execution across all areas of the business.
15 May 18
Amino Technologies (AMO LN) Contract win with T-2 in Slovenia | ITE Group (ITE LN) Acquisition & Rights Issue | Lookers (LOOK LN) Continued outperformance with growing confidence in forecasts | Northgate (NTG LN) In line year end update; VOH growing, but margins still under pressure | Zytronic (ZYT LN) Financial sector holds back progress elsewhere
LOOK AMO HYVE NTG ZYT
15 May 18
Actual Experience (ACT LN) Large-scale deployment and reseller agreement validates opportunity | Dialight (DIA LN) AGM trading update – some progress on operational issues | Findel (FDL LN) PBT growth at upper end of expectations for FY18 | Gresham Technologies (GHT LN) Clareti contract win provides further evidence of positive momentum | Harwood Wealth (HW LN) Refining the board structure, FD stepping back | Lookers (LOOK LN) Vauxhall network changes could be helpful for partners long term
LOOK ACT DIA STU GHT HW/
17 Apr 18
Another record year of performance was achieved by the continuing activities of the group despite challenging market conditions that are persisting into 2018. As management pursues its strategy of focusing on the right brands in the right locations supported by appropriate levels of investment, it is continuing to outperform its markets. We expect this to continue with a remaining proactive focus on costs. Comparatives should ease as FY18 progresses but will start tougher due to the strength of markets in Q117. We now expect a modest decline in PBT for the full year.
04 Apr 18
Executing well in tough market
Lookers has once again demonstrated good growth in challenging conditions, with clear outperformance against the market. We are maintaining our forecasts at this juncture, and have made some conservative assumptions from 2018E based on our cautious sector stance. That said, we do believe the shares are oversold particularly in the context of its balance sheet flexibility, undemanding valuation and progress delivered to date based on strong management execution across all areas of the business. We also note the attractive dividend on offer and commencement of its £10m share buyback programme.
07 Mar 18
LIBERUM: Lookers - Resilient FY17, but expect consensus to reduce
FY17 underlying PBT of £68.4m is a slight miss vs. our £70.9m, but more so vs. the higher consensus of £72.4m. Top line total growth of 15% has been delivered with growth across divisions in a tough market. However, gross margin is down (mix impact), as is operating margin, leading to PBT growth of 5%. Net debt has come in higher due to higher stock buying in December year-on-year to take advantage of lower market prices and increased net capex. Management notes that the new car order book for the key month of March is in line with expectations and used cars and aftersales continue to grow. Q1 is expected to be in line with expectations. Given the slight miss vs. expectations and tough outlook, we would expect consensus FY18E PBT to move towards £70m vs. the current £72.4m (range £61.0m-77.5m).
07 Mar 18
Anpario (ANP LN) In line FY results, strong balance sheet | Bagir Group (BAGR LN) Prelims and strategic partnership with Shandong Ruyi pending | Bioquell (BQE LN) Strong in line results, outlook remains positive | Hill & Smith Holdings (HILS LN) FY17 ahead; positive outlook for FY18 | Instem (INS LN) SaaS expansion | Lookers (LOOK LN) Resilient performance in key segments but further small d/grades | Pharmaceutical Services Structural growth in a complex landscape | River and Mercantile Group (RIV LN) H1 in line, small impact from provision, investment case unchanged | St Ives (SIV LN) H1 results drive upgrades
LOOK ANP BAGR BQE HILS INS RMMC KCT
07 Mar 18
Piercing the gloom
Lookers issued a Q3 trading statement that reaffirmed management expectations for 2017. It also indicated the initiation of a share buyback programme, as in the absence of any immediate M&A opportunities the recent fall in the share price has made the returns compelling from such an allocation of capital. Clearly, new car sales in the UK are persistently lower year-on-year, with confidence declines among consumers and businesses taking their toll. However, the strength of higher-margin used car demand and aftermarket sales continue to deliver a positive mix. Overall, the rating appears undemanding and the yield attractive.
13 Nov 17
Positive Q3 update
Lookers has demonstrated good growth in a challenging new car market with clear outperformance against the market and its peers. We are maintaining our forecasts at this juncture, albeit have made conservative assumptions from 2018E based on our cautious sector stance. That said, we believe the shares are oversold particularly in the context of its balance sheet flexibility, undemanding valuation and progress delivered to date based on strong management execution across all areas of its business.
09 Nov 17
N+1 Singer - Lookers - Encouraging Q3 and YTD trading underpins f/casts. Buybacks planned
Contrary to fears of a disaster, Lookers has delivered an excellent trading update with positive LFL GP performance in all 3 business segments including New. Not only this but management has indicated some support from its OEMs in response to the weaker new car market, which will help to “reduce operating costs” and help “offset the effect of lower new car volumes going forward”. This performance puts it on track to meet market forecasts, meaning no further downgrades as feared, and potential scope to advance next year too. Given the fall in the share price, anomalous valuation and positive performance the Board has agreed to a buyback programme at the current price. Expect the shares to respond positively today as a result, and deservedly so.
09 Nov 17
Prospects for 2018/19
Sector sentiment remains low and the new car market continues to decline. We believe the sector valuation has priced in a lot of this risk but update our forecasts to reflect the more difficult trading environment, applying a c.10% -15% downgrade to earnings across the sector. 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. Dividend yields are attractive at current valuation and FCF yields are generally attractive despite high levels of capex.
LOOK CAMB MMH PDG VTU
03 Nov 17
N+1 Singer - Motor Retail - More scrappage plans help New segment, and should offset fears
VAG (Audi, Seat, Skoda, VW) and Toyota have both announced scrappage schemes for older polluting vehicles, the latter of which like Ford’s car and van scheme is across both diesel and petrol engines. Taken together with Ford, BMW and Mercedes, brands representing c25% of the market (or >50% across both diesel and petrol) are now promoting scrappage schemes in time for the September plate change. The SMMT estimates at least 19m old standard polluting engines are still on the road, so the plans announced to date should have a material positive effect on flagging new car sales, which has been a key concern in the market, and we believe others will likely follow suit over the next few days. The scrappage scheme in 09/10 buoyed registrations by 0.4m vehicles. In today's 2.6m market an equivalent boost would equate to 15%. It is unlikely to match the prior scheme in our view though, unless most brands participate and offer both petrol and diesel options. News to date is still an important positive for the listed retailers though (CAMB, LOOK, MMH, PDG, VTU) which all have exposure to these brands, especially Marshall Motors and Lookers where the mix is over 50% of their portfolio. The sector trades on just 7x P/E (4x EV/EBITDA) so this news may support some recovery. Separately Vertu Motors has issued an in-line H1 pre-close trading update today and a freehold sale & leaseback for £14m (£4m over NBV). VTU trades on 6.8x P/E (3.4x EV/EBITDA) after adjusting for the property deal. Cambria (Corp) will issue its pre-close next week. Prospects for future portfolio enhancement look bright as does the earnings outlook as its new and upgraded JLR dealerships come on stream this and next year.
Lookers Cambria Automobiles
01 Sep 17
A strong first half performance saw Lookers deliver yet another record trading period, overcoming the dilutive effect of the sale of the Parts business in H216. The performance of the continuing activities has been enhanced by the reinvestment of the proceeds in the two new dealership groups last year. In addition the balance sheet remains strong, facilitating both organic investment and M&A, despite the uncertainty that persists in the UK car market. Lookers looks set to continue its growth strategy with a sharper brand focus. The improved prospective yield also has attractions.
22 Aug 17
N+1 Singer - Lookers - Strong results and well positioned to deliver on strategic growth
Interim results reveal a strong H1 performance, with market outperformance in all areas of the business (including mid single digit LFL unit growth in New and Used, on maintained GPPUs). Whilst the outlook commentary signals a slightly more cautious view in New, the market remains close to all time high levels and the significant brand enhancement strategy completed over 18 months means we continue to anticipate market outperformance in both sales and GPPU. With the impressive CMD event still fresh in mind from May, we remain upbeat about future prospects and believe the valuation is unduly low on 7x P/E and 3.4% yield. M&A remains on the cards should vendor price demands correct and just deploying half available resource should deliver accretion of c15%. The shares should rise today.
16 Aug 17
Robust H1, forecasts unchanged
Lookers has delivered a solid set of interim results this morning, with adj. PBT from continuing operations (ex parts) up 18% to £50.2m (H1 2016: £42.6m). There was a good performance across all new, used and aftersales demonstrating a robust margin performance across all segments of the business. The trading outlook remains uncertain as we are currently seeing across the sector, and clearly September remains key for the full year performance. We are maintaining our forecast assumptions for now, and believe the valuation remains undemanding given the company’s long term track record of generating value.
16 Aug 17
June SMMT data: private registrations -7.8% YOY and -4.8% YTD
The SMMT (Society of Motor Manufacturers and Traders) has released data this morning confirming new car registrations in June of 243,454 which is -4.8% YOY, implying a H1 of 1,401,811 units which is -1.3% YOY but represents the second highest H1 on record. Private registrations were -7.8%, with fleet also showing a decline at -2.4% YOY representing 57.1% of registrations vs. 55.6% last year. We continue to believe the earnings risk has been accounted for in heavily discounted valuation multiples based on cautious and below consensus forecast assumptions across our coverage universe. We continue to favor stocks with flexible balance sheets at this stage of the cycle, and believe stocks such as Vertu and Cambria remain significantly underpinned by their growing property portfolios and proven operating models.
LOOK CAMB VTU PDG INCH MMH MOTR BCA AUTO
05 Jul 17
Trading in line
Lookers has released a solid trading update this morning ahead of its Capital Markets Day this afternoon, essentially confirming they are trading in line with expectations. We are maintaining our cautious forecast assumptions for now as we anticipate the backdrop, particularly in new cars, to get tougher through H2. That said, the strong performance across all three divisions of the company is encouraging. As with the rest of the sector, we believe current risk levels are priced in and believe the current valuation looks undemanding.
11 May 17
N+1 Singer - Morning Song 11-05-2017
Cxense ASA (CXENSE NO) Q1 churn no cause for concern | Hill & Smith Holdings (HILS LN) Trading in line | Lookers (LOOK LN) Strong trading performance in Q1, especially in Used | Porta Communications (PTCM LN) 2016 final results | Rathbone Brothers (RAT LN) FuM +5% in Q1, 3.3% organic net inflows in Investment Management
LOOK HILS PTCM CXENSE RAT
11 May 17
Record SMMT March new car registration data
The SMMT (Society of Motor Manufacturers and Traders) has released data this morning confirming a record new car market in March of 562,337 registrations and +8.4% YOY, implying a record Q1 of 820,016 +6.2% YOY. Private registrations +4.4%, fleet continues to drive the growth in this market and was +12.6% YOY representing 46.6% of registrations vs. 44.9% last year. We believe the earnings risk has been accounted for in heavily discounted valuation multiples based on cautious forecast assumptions (we assume a 10% drop in new car registrations vs. the SMMT at -5%). We continue to favour stocks with flexible balance sheets at this stage of the cycle, and believe stocks such as Vertu and Cambria remain significantly underpinned by their growing property portfolios and strong operating models.
LOOK CAMB VTU PDG INCH MMH MOTR
05 Apr 17
Strategy for driving growth
Lookers continued its impressive development in FY16, delivering yet another record performance. The buoyancy of the UK car market combined with the disposal of the parts distribution business enabled management to further its consolidate and build strategy. The addition of Warwick Holdings and Knights North West are further positive developments, with more acquisitions likely during 2017 adding to organic progression.
16 Mar 17
N+1 Singer - Lookers - Positive results and confident outlook including capacity for M&A
Results today are bang in line with expectations on an underlying profit basis (ex discontinued) and ahead at the EPS level courtesy of a lower tax charge. The dividend is ahead of consensus too. Net debt was £20m higher than forecast, mainly reflecting the decision not to complete specific sale & leasebacks - meaning the property asset backing is higher at c£290m (c73p/share). Core strategic initiatives are advancing well in all segments, and recent acquisitions have integrated well, performing slightly better than originally guided. The group has had a good start to FY17 and March orders are up YoY. We note their opinion that the New market is likely to be relatively stable (rather than down). Today’s Budget could influence opinion either way. M&A remains an opportunity for growth. Whilst forecasts changes are unlikely today, the confident tenor of the statement is welcome and offers scope for re-rating from low levels.
08 Mar 17
FY results, good DPS beat
Lookers has delivered a solid set of FY results, with adjusted EPS coming in 1% ahead of our forecast at the adjusted EPS level. The dividend also beat our forecast by 7% and was +17% YOY indicating its confidence for the future. Net debt was higher than we anticipated, albeit the balance sheet remains strong with net debt/EBITDA running at 0.6x following the parts disposal. The trading outlook remains robust, with the new car order book for March progressing well. We are maintaining our cautious forecast assumptions for now, and believe the valuation remains undemanding given the high level of execution we have seen to date.
08 Mar 17
FY results due 8 March
We anticipate strong FY results from Lookers next week, which will include a contribution for the parts business for most of the year, but also show good levels of outperformance in the all-important used car and aftersales markets. We expect the balance sheet to be strong following the parts disposal, which should be a comfort to investors at this stage of the cycle. While we do anticipate more difficult trading conditions post Q1 2017, we think Lookers will continue to outperform the market, and believe our below consensus estimates are cautiously set. The shares have recovered from their “post Brexit slump” of sub 100p, but the valuation remains undemanding.
03 Mar 17
SMMT 2016 data
The SMMT (Society of Motor Manufacturers and Traders) has released data this morning confirming a record new car market of 2.69m registrations and +2.3% YOY. This is the fifth year in a row of growing new car registrations. Headline December registrations were -1.1% with private registrations -5.5% completing a third quarter in succession of negative growth in this segment. Fleet continues to drive the growth in this market and was +4.8% YOY representing 51.3% of registrations vs. 50.0% last year. The key question is what will happen in 2017 post Brexit with uncertainty levels still high. We maintain our cautious stance and downgraded our EPS forecasts by 8-15% across the sector in November accordingly. That said, we believe the earnings risk has been accounted for in trough valuation multiples based on cautious forecast assumptions (we assume a 10% drop in new car registrations vs. the SMMT at -5%). We continue to favor stocks with flexible balance sheets at this stage of the cycle, and believe stocks such as Vertu and Cambria remain significantly underpinned by their growing property portfolios.
LOOK CAMB VTU PDG INCH MMH BCA AUTO
05 Jan 17
Looking into 2017/18
Sector sentiment is at a low point with clear uncertainty around 2017/18 earnings. We are attempting to cut through this, and believe the share price falls more than price in the earnings risk. Following a robust September, we would expect a strong 2016 performance, which has been confirmed by all dealers, but do expect conditions to get more difficult from here. We continue to favour stocks with flexible balance sheets at this stage of the cycle.
LOOK CAMB INCH MMH PDG VTU
16 Nov 16
Q3 Trading Update
Lookers has announced a Q3 trading update this morning, essentially confirming it is trading in line with current expectations. Management have deleveraged following the recent transactions with our 2017 net debt/EBITDA forecast now 0.4x based on our revised forecasts and we estimate the company has over £100m of firepower available. We are tweaking our forecasts down in 2017 and 2018 by 4-5% at the EPS level to reflect more conservative assumptions, and expect consensus levels to fall within this range accordingly. That said, we believe the valuation of the shares based on these more cautious assumptions remains compelling with Lookers well positioned longer term. As stated in our “Post Brexit Thoughts” sector note in July this year, we do not believe the sector faces a 2008 scenario, albeit market conditions are likely to soften from here.
09 Nov 16
We adjust our forecasts following Lookers impending disposal of its parts division and subsequent re-investment in two premium dealer groups. The company has acquired Drayton for £55m which was conditional on the sale of the parts division and separately completed a further £27m acquisition of Knights. Management have deleveraged following the transaction with our 2017 net debt/EBITDA forecast now 0.3x and we estimate the company has over £100m of firepower available. We would back this management team to deploy this effectively, building long term value for investors.
20 Oct 16
N+1 Singer - Motor Retail - Low gearing, asset backed, strategically placed
After unprecedented amounts of acquisition activity in 2015 and 2016, with c£450m spent by the 4 listed consolidators, we have refreshed our analysis of financial gearing. Contrary to popular belief, gearing in FY17 is forecast at 0.3x ND/EBITDA so well below FY14 (0.7x) and target thresholds (1.0-1.5x). We have also identified that property backing has risen c£175m to c£775m with several retailers now only leasing half their portfolio. Operationally and strategically, the key players appear well positioned to continue outperforming their weaker counterparts, taking market share and forcing more accretive consolidation. This is a virtuous circle which should continue to improve profitability. FCF will also step up in 2 years as the heightened OEM-led capex cycle concludes. Notwithstanding uncertainties around Brexit, trading has remained stable near term. These factors are not priced in, with the subsector trading on a 45% discount to the General Retail sector and on just 1.75x EV/EBITDA on a (purely theoretical) ex property basis.
LOOK CAMB VTU PDG MMH
26 Sep 16
Plenty of action
In just two weeks, Lookers successively announced the planned £120m disposal of its Parts division, a £55m acquisition, a fine set of interim results and, finally, another £27m acquisition introducing BMW/MINI to the group. All point positively to the future, yet the shares languish at 30% below their 12-month high and at a 45% P/E discount to the retail sector.
31 Aug 16
Record H1 results again
Lookers has delivered a record set of H1 results with adjusted PBT 7% ahead of our forecast. 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. We are not changing our forecasts at present, and will await the completion of the parts disposal and Drayton acquisition. If these transactions did complete, we believe Lookers would have c£100m of financial firepower, and we feel confident management would deploy this effectively, building long term value.
17 Aug 16
N+1 Singer - Motor Retail - A compilation of recent snippets
After our interesting conference at the start of July (featuring Vertu, Lookers, Marshall, Cambria, ASE and Tesla), Motor Retail shares have generally bounced from their lows, but remain below previous levels. In this note we summarise the recent sector snippets and reiterate some key positive conclusions from our conference, plus provide a link to the video of the event. Brexit, economic uncertainties and SMMT stats are weighing on the sector in sentiment terms, but it is noticeable how the quoted companies continue to actively pursue their growth and consolidation strategies and give reassuring updates. Interims next week from Lookers and Marshall Motors should provide further insight.
LOOK CAMB MMH BCA VTU PDG
11 Aug 16
H1 results due 17 August
We anticipate a robust set of H1 results from Lookers, as it should deliver growth on what was a record performance last year. The last update for the key period of Q1 showed good progress across the business, albeit we would anticipate weaker trends in Q2 as flagged by some of its peers. Overall, we think the shares have been oversold, and the discounted valuation vs. its peers is at odds with its track record, ROCE, FCF yield and relatively defensive business model.
04 Aug 16
The sector has come under severe pressure following the Brexit vote with investors clearly pricing in distressed economic scenarios with share prices falling between 15% and 51% across the sector. We believe the dealer groups are better businesses this time around, albeit the uncertainty in the economy is likely to adversely impact both new and used car sales. We would favour those stocks that have been oversold with flexible balance sheets. We see significant long-term upside in Cambria and Vertu as fitting these criteria. We are also becoming more positive on Inchcape as its overseas exposure against a weak Sterling backdrop should give it some protection, backed by a strong balance sheet. We believe that Lookers and Pendragon have also been oversold, but remain nervous on Marshall Motor Holdings following its recent decision to gear up by purchasing Ridgeway.
LOOK CAMB INCH MMH PDG VTU
07 Jul 16
Adverse reaction hard to justify
A weak share price reflects fears about a post-Brexit economy rather than current trading, which remains on course. The challenge may again be formidable, but there are opportunities that a strong management team can use to demonstrate the quality of the group’s earnings.
06 Jul 16
N+1 Singer - Retail - Matthew - Brexit driven forecasts and valuation update
Prior to the EU vote, fears of Brexit undermined consumer confidence and spending patterns, and sterling weakened against the US$ and the €. Wider fears for employment, consumer spending and economic slow-down had hit Retail stocks significantly (-10% rel. YTD). Friday’s surprise Brexit vote has impacted Sterling again and will further knock confidence and spending too. The sector came under material further pressure as a result, falling 10% on the day vs the Allshare’s 3%. As noted on Friday, there are 4 stocks in our universe where forecasts are favourably exposed to FX upside risk (BCA, Boohoo, Swallowfield, Walker Greenbank), 5 stocks which we have downgraded (Debenhams, Findel, Halfords, N Brown, Howden Joinery) with the remainder left unchanged including Motor Retailers.
LOOK BOO CAMB DEB HFD HWDN BWNG SFE BAR WGB BCA
27 Jun 16
Solid Q1 statement, shares oversold
Lookers has delivered a solid Q1 performance across all areas of its business vs. strong prior year comparatives. We also note the disposal of VW Battersea for £18.1m, which further strengthens its balance sheet with cash generation remaining strong. We are maintaining our headline forecasts at this juncture, but believes the Group remains well positioned and we would not rule out any further acquisitions this year. The shares look well oversold to us as the valuation is at the bottom end of the UK dealer average despite having above average ROCE, FCF yield and a very strong track record delivered to date.
17 May 16
Strong trading in all divisions and cashflow running ahead of budget
Given the various data points and anecdotes year to date, we were hopeful of a strong start to the year at Lookers. Today’s Q1 update confirms trading performance is substantially ahead YoY with an excellent organic performance and a significant contribution from the acquired Benfield business. This includes VAG brands where recall activity is scheduled to drive Aftersales income later in the year and its Used division where volume growth and PPU metrics are on trending up, helped by the recent web platform upgrade. Forecast growth therefore looks well underpinned. Battersea inflows and w/c control means cash inflows are ahead of budget which will provide reassurance after a ND miss at the previous year end which related to w/c outflows from Fleet. Shares should bounce. Buy.
17 May 16
Chemicals Consumer and FX bright spots lifting the gloom | First Derivatives (FDP LN) Consensus beat highlights strength of sales momentum | Hill & Smith Holdings (HILS LN) Strong trading again; more upgrades | IDOX (IDOX LN) Strong trading update | Lookers (LOOK LN) Strong trading in all divisions and cashflow running ahead of budget | OMG (OMG LN) Record H1, strength on multiple fronts | Raven Russia Ltd (RUS LN) Conditional issue of convertible preference shares | Speedy Hire (SDY LN) Reassuring numbers; strategy on track | Ten Alps (TAL LN) Trading Update | Victrex (VCT LN) Restoring investor confidence | Zytronic (ZYT LN) Trading in line; Mix improving
LOOK FDP HILS IDOX OMG RAV SDY ZIN VCT ZYT
17 May 16
Taking the temperature
We believe that the UK motor sector has had a strong Q1 2016, which should position most companies well for H1. Consumers are still responding well to attractive financing deals, and we anticipate a strong H1 performance from dealers as a result. Valuations amongst the dealer groups remain undemanding in our view, and we see scope for further consolidation during the coming year.
LOOK INCH AUTO BCA MMH PDG VTU CAMB AN KMX CPRT KAR GPI LAD PAG SAH
08 Apr 16
Final results, forecasts maintained
Lookers has delivered a solid set of results, which are 1% ahead of our forecasts at the adjusted PBT level. The core business continues to deliver strong volume growth vs. the market while also maintaining pricing discipline, while the parts business is delivering modest growth albeit at higher than average margins. We are maintaining our forecasts on the back of these results and continue to believe that the group remains well positioned.
09 Mar 16
Another year of progress, forecasts well underpinned
PBT for the year increased by 11%, and was a smidge above consensus (smidge below N+1E). Performance was strong across all operating divisions with momentum building as planned in Used and Fleet. Strong Fleet growth (+30%) created more of a w/c headwind than forecast though, resulting in ND £30m higher than expected. Part of this will be clawed back and Battersea will generate £18m next month but ND forecasts will still worsen by c£10m today. Lookers has enjoyed a positive start to the year including March and forecasts for FY16 look well underpinned, albeit there upgrades are not on the cards at this early state of the year.
09 Mar 16
Abzena (ABZA LN) Business update highlights strong H2 progress | ATTRAQT Group (ATQT LN) Strong delivery; Investing for further growth | Euromoney Institutional Investor (ERM LN) Investor day | Hill & Smith Holdings (HILS LN) Excellent results; strong upgrades | John Menzies (MNZS LN) Forecasts retained; period of stability required | Lookers (LOOK LN) Another year of progress, forecasts well underpinned | Restaurant Group (RTN LN) Trading remains challenging – we move back to Sell | Servelec Group (SERV LN) Prelims in line, acquisition-led upgrades
LOOK ABZA ATQT ERM HILS MNZS
09 Mar 16
Preview – buy ahead of prelims on Wed 9th March
Like other leading players in the motor retail sector there is a lot going on at Lookers. Updates on organic performance were positive through the course of the year and it acquired Benfield in September. Benfield is very well known to management, should yield benefits from prior investment and presents synergy/efficiency potential for Lookers, not all of which is yet built into forecasts. Gearing may have temporarily increased to 1.3x but this is forecast to fall back to 0.9x this year, or possibly even 0.5x (vs 0.7x pre Benfield in FY14) in the event of upgrades and Battersea proceeds
04 Mar 16
Final results due 9 March
Ahead of final results on 9 March, we believe the shares look undervalued, particularly in the context of the 20% EPS growth we expect Lookers to deliver in 2015 falling to 16% in 2016. We believe our 2016 forecasts have been cautiously struck and believe the Group looks to be well positioned.
23 Feb 16
Signs of US consolidation in UK market
We note the acquisition of UK private company Spire Automotive by US listed Group 1 Automotive yesterday for an undisclosed sum. With US motor retailers seemingly struggling for growth and seeing more margin pressure, it will be interesting to see whether we see more transactions of this nature, particularly against a backdrop of a strengthening US dollar. Market conditions in the UK look to remain robust with UK new car sales for January the strongest since 2005, with residual values seemingly still robust. The sector remains good value to us, and looks like the dealers across the pond also see this too.
LOOK INCH AUTO BCA PDG VTU CAMB AN KMX CPRT KAR GPI LAD LAD SAH
05 Feb 16
Value in Motor Retail, encouraging stats in car markets
Updates/results from Cambria, Lookers, Marshall and Vertu are due in early March. Following recent weakness, sub-sector valuations have fallen too far in our opinion, now on a cal’16 P/E of 9.4x (5.4x EV/EBITDA) reducing to <9x (<5x) cal’17. Given ongoing consolidation opportunities, enhancing acquisitions are likely to reduce those multiples further in key names over the course of 2016. The sector slump in part reflects doubts and concerns about motor retail dynamics including VAG prospects. In this context, investors should take reassurance from the latest registration data from the SMMT, industry insights after a meeting with BCA, and the latest acquisition of VAG branded dealerships.
LOOK CAMB VTU MMH
05 Feb 16
Registrations bounce in VAG brands provides support
Lookers has been performing well in the motor retail market and outer year growth prospects were recently bolstered by the Benfield acquisition. Organic performance, benefits from market consolidation, and the upside from Benfield could all present some upside to forecasts. Weakness in the shares since the VW emission scandal arose looks unjust, though, and yesterday’s SMMT data should provide the necessary comfort for this to reverse. New car registrations have bounced from the lows in Oct/Nov and profits in the new year should benefit from incremental recall activity. The current valuation gap therefore provides an investment opportunity. Buy.
08 Jan 16
Outlook for 2016
We believe that the UK Motor Sector continues to offer attractive opportunities following a successful 2015 given it’s anticipated above average growth rates, strong cash generation and attractive ROCE generated from largely robust balance sheets. We also expect further consolidation amongst the dealers, as the operating environment continues to favour larger groups in our view.
LOOK AUTO BCA CAMB INCH MMH PDG VTU
01 Jan 16
Record Q3, in line with expectations
Lookers has delivered another record Q3 period, and continues to deliver good growth across all of its business divisions. The stand out performance is that in aftersales, which bodes well given the rising UK car parc. We are maintaining our forecasts following an organic earnings upgrade post H1 results and the Benfield acquisition in September. That said, our net debt forecast looks conservative. The shares have lagged the sector post the VW scandal, and we believe the valuation looks attractive at this juncture given the quality of this business and performance delivered to date
30 Oct 15
SMMT September data
The SMMT (Society of Motor Manufacturers and Traders) has released data for the key trading period of September this morning. The headline number has again come in at record levels, showing growth in private registrations vs. what was a strong prior year comparative. However, we do think there was an element of self-registration that took place here, with the fleet market again driving a significant proportion of the growth. The VW emission issue does represent some uncertainty for dealers as we move into Q4, but this is seasonally quiet anyway and we suspect dealer profitability will be intact for 2015
LOOK INCH AUTO BCA PDG VTU CAMB AN KMX CPRT KAR GPI LAD PAG SAH True
06 Oct 15
The market responded positively to the Benfield Motors acquisition, lifting the share price by 9% on the day. The natural fit, the enhancement to earnings and the minimal risks related to management synergy all point to an excellent deal for shareholders. The shares remain attractively priced.
07 Sep 15
Adding fuel to the machine
We believe Lookers has made a good move in acquiring Benfield, which essentially provides nearly 25% more scale in the Group with many of its brand partners offering good synergy potential. Lookers MD Nigel McMinn has been CEO of Benfield in the past, and therefore knows the business and staff extremely well, which should also provide some confidence to investors. In addition, the deal stacks up financially, and we can see how Lookers can make a pre-tax ROI of at least 15% from this transaction on a medium term basis. This transaction is also immediately EPS enhancing, and the ROI exceeds its WACC under the first full year of ownership even on a post-tax basis. After updating our forecasts, we believe the shares are too cheap as it continues to trade at a clear discount to the sector. Overall, we remain supportive of this transaction, and continue to see a positive risk/reward profile for investors at this juncture despite recent share price gains of late.
07 Sep 15
High quality acquisition with high level of visibility
Lookers has announced the acquisition of Benfield Motors for £87.5m. This is an excellent transaction, the largest in the sector for some time, and will be immediately earnings enhancing. We have upgraded our current year EPS forecast by 5.1% (part year benefit) and next year’s EPS forecast by 12.5%. There is a clear route to value creation with the MD of the Motor Division having previously run Benfield, and a high level of confidence in management’s integration plan and future synergies. Using consistent valuation methodology we have upgraded our target price by 10% to 205p and reiterate our BUY stance on the stock.
04 Sep 15
Benfield acquisition for £87.5m – 12.5% upgrades in 1st full year (FY’16)
Lookers has announced a large acquisition this morning, buying Benfield Motors for £87.5m in cash. This transaction will be immediately earnings enhancing, and we anticipate upgrading current year forecasts by c4-5% and next year by c12.5%+. With the MD of the Motor Division having previously run Benfield, confidence in the integration plan and future synergies is high. We would therefore expect to upgrade our target price by an amount comparable to next year’s upgrade, i.e. to around 200p+. This is an excellent transaction and the shares should respond accordingly. We reiterate our BUY stance on the stock and will review forecasts and target price in due course.
03 Sep 15
Carclo (CAR LN) Trading in line | Greene King (GNK LN) Upcoming Q1 update unlikely to be a positive ST catalyst | Horizon Discovery Group (HZD LN) Collaboration with Redx Pharma | Lookers (LOOK LN) Benfield acquisition for £87.5m – 12.5% upgrades in 1st full year (FY’16) | Redde (REDD LN) Upgrading PBT, strong growth drives dividend | Summit Therapeutics (SUMM LN) Dr Ralf Rosskamp appointed Chief Medical Officer
LOOK CAR GNK HZD REDD SUMM
03 Sep 15
While Lookers shares have risen by 12% over the past year, we feel the current rating still fails to recognise the future potential. Interim results prompted a rise in market estimates, which given the order book, could well be extended following the group’s autumn IMS. Standing at a c 28% discount to the FTSE All-Share retailers index, we feel that the market fails to recognise the industry dynamics being exploited by management.
25 Aug 15
Positive H1 drives c3-4% upgrades with growing acquisition potential
Interim results confirm Lookers has delivered another strong half, with notable performance in Fleet, Used and Aftersales. As highlighted in previous company and sector research, Lookers appears well positioned to benefit from wider sector trends, including a growing car parc which bodes well for volumes in Used and revenues in Aftersales in the next phase of the cycle. It also looks well positioned to make accretive acquisitions in both its Motor and Parts divisions given growing opportunity and fire power. With an excellent track record of delivering value, good forward prospects, and an attractive valuation in both absolute and relative terms we maintain a Buy stance on the stock.
12 Aug 15
Preview – buy Lookers ahead of interims on 12 August
Lookers will release interim results next Wednesday (12 Aug). These could surprise to the upside and our analysis suggests consensus forecasts are overly cautious given favourable organic growth prospects and accretive acquisition opportunities. The £4m (+6%) YoY PBT growth assumed by the market for the full year to Dec’15 is broadly what we forecast in H1. In fact, our analysis reveals a bull case scenario where H1 profits could increase by c£7-8m. Recent industry data and peer group results lead us to believe this is a plausible scenario. With upside risk to forecasts and with valuations looking relatively attractive we recommend investors buy Lookers ahead of these results.
05 Aug 15
ATTRAQT Group (ATQT LN) First technology partnership should open up opportunities | BBA Aviation (BBA LN) Mixed H1 | Latchways (LTC LN) Full year expectations unchanged | Lookers (LOOK LN) Preview – buy Lookers ahead of interims on 12 August | Restore (RST LN) Small bolt-on acquisition | Sinclair IS Pharma (SPH LN) Full year trading update | Synairgen (SNG LN) Research collaboration with Pharmaxis | Tetragon Financial Group Ltd (TFG NA) Taking volatility in its stride
LOOK ATQT RST SPH SNG TFG BBA
05 Aug 15
Lookers has delivered an excellent set of results against tough prior year comparatives, and are 4% ahead of our forecasts at the adjusted PBT level. We believe we have slightly underestimated the company going into these results, but management continue to deliver strong progress and outperformance across all of its key business divisions. We would expect to see upgrades on the back of these results of c.4% at the adjusted EPS level. With the order book building well ahead of the all-important September trading period, we see further upside risk to earnings as we progress through the year. While Lookers does trade at a premium to its peers, we believe its valuation is undemanding vs. the wider UK General Retail sector given its growth track record, above average ROCE/FCF yield and balance sheet firepower for future growth. We therefore continue to believe that Lookers are well positioned for the future and maintain a positive stance on the shares.
01 Aug 15
Motor retailers - positive read across from strong industry data
The latest data from the SMMT has positive read across for the motor retail stocks where the average valuation gap vs. the overall retail sector has now widened to almost 35% given the level of re-rating witnessed elsewhere. The recent £/€ rate bodes well for continued momentum. The next motor retailer to update will be Marshall Motors on Thursday (its maiden H1 pre-close) which we expect to read well. However, our preferred stocks in the sub-sector are Lookers (Buy) trading on a cal’15 P/E of 11.8x and Cambria (Corporate) trading on a cal’15 P/E of just 9.7x. In both instances we believe consensus forecasts could be overly conservative.
LOOK MMH CAMB
07 Jul 15
Beating the market
Lookers’ forthcoming interim figures should again show that the group is outperforming its market, and we estimate pre-tax profit will rise by at least 5%. We believe share prices in the motor segment of the retail market fail to recognise the quality of earnings. Its shares are attractively priced.
02 Jul 15
Buy motor retailers for next phase of growth cycle
In our 28th April motor retail sector note we concluded that the leading franchise operators have above average prospects within the retail sector, driven by organic growth opportunities and acquisition led growth potential. We flagged up two key short term risks though (election and falling residual used car values) but with these risks fading we believe the sector’s growth prospects should come back into focus. Ratings are low in both absolute and relative terms and there is a clear argument for a re-rating in the 2nd phase of the cycle as the mix and quality of earnings should improve. We turn positive on the sub-sector and highlight Cambria (intrinsic value rises to 78p) and Lookers (target price raised to 182p) in particular.
LOOK CAMB MMH PDG VTU
08 Jun 15
Lookers has delivered a confident trading update, confirming that it has had a record Q1, which compares to strong comparatives in the prior year. We are maintaining our forecasts on the back of this update, but believe there is some potential for upgrades as we progress through the year if market conditions remain the same. We believe the valuation remains undemanding, and that Lookers remains well positioned in the current environment.
14 May 15