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.
We believe the elevation of Mark Raban to CEO of Lookers from his current CFO position should be seen as positive by investors. Mark has enjoyed a career spanning more than 30 years in retail and much of that in recent years has been in the motor trade with Inchcape and more recently Marshall Motor Holdings (MMH). As CFO he helped to steer MMH through its IPO and the transformational takeover of Ridgway. He starts his new role at Lookers having already had a chance to look under the bonnet of the second-largest UK automotive retail group after joining as CFO last May. Actions and controls implemented since his arrival appear to be having a positive impact on debt.
The company announced a trading update saying that despite a challenging Q419, especially in new car markets, forecast PBT was in line with the board’s expectations. New car sales fell 6.6%, below the UK market (Q419 -1.6%). More positively, used car sales rose 3.8% in Q419 outperforming a flat market as inventory levels were reduced, with more stable margins. Aftersales remained robust with sales broadly flat. The portfolio optimisation continued generating £8.3m of property sales proceeds, which combined with increased discipline on capex, working capital and cost controls left year-end net debt substantially better than expected at just £62.0m. The challenging retail environment persists with January UK new car registrations falling 7.3%, due to weak private buyer sales (down 13.9%), but management appears to be proactively addressing the issues.
In valuation terms the net debt improvement is worth about 10p per share, which is close to the share price recovery from November’s low. The multiple expansion since that low suggests investors expect a recovery in FY21 and if management confidence is increased by the FY19 debt level, dividend yield could be a support.