Lookers — Smoothing out the bumps

Lookers (LN: LOOK)

Last close As at 17/07/2024

74.70

−7.80 (−9.87%)

Market capitalisation

GBP279m

More on this equity

Research: Industrials

Lookers — Smoothing out the bumps

Lookers continues to perform robustly as the UK car market faces supply constraints for both new and used vehicles. While volumes are down, used prices are strongly ahead year-on-year despite plateauing in H122. As a result, Lookers expects £45m of underlying PBT in H122, ahead of its expectations. Conditions may moderate further in H222, but management still expects FY22 to be ahead of its previous expectations. We have increased our FY22 underlying PBT by 17% to £62m, while maintaining our FY23 estimates as we expect demand to face increasing challenges.

Andy Chambers

Written by

Andy Chambers

Director, Industrials

Industrials

Lookers

Smoothing out the bumps

Pre-close H1 trading update

Automotive retail

30 June 2022

Price

76.4p

Market cap

£299m

Adjusted net cash (£m) at 31 December 2021 (excluding lease liabilities)

3.0

Shares in issue

391.9m

Free float

79%

Code

LOOK

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

4.7

(20.0)

7.5

Rel (local)

9.1

(16.2)

8.1

52-week high/low

101.00p

56.40p

Business description

Lookers is one of the largest UK motor vehicle retailers, with its new car operations supported by the strength of used and aftersales activities. It now operates 153 franchises, representing 33 marques from 100 sites around the UK and Ireland, with strong regional presences in Northern Ireland, Scotland, the South East and across northern England.

Next events

H122 results

August 2022

Analyst

Andy Chambers

+44 (0)20 3077 5700

Lookers is a research client of Edison Investment Research Limited

Lookers continues to perform robustly as the UK car market faces supply constraints for both new and used vehicles. While volumes are down, used prices are strongly ahead year-on-year despite plateauing in H122. As a result, Lookers expects £45m of underlying PBT in H122, ahead of its expectations. Conditions may moderate further in H222, but management still expects FY22 to be ahead of its previous expectations. We have increased our FY22 underlying PBT by 17% to £62m, while maintaining our FY23 estimates as we expect demand to face increasing challenges.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/20**

3,700

13.7

2.97

0.00

25.7

N/A

12/21

4,051

90.1

19.95

2.50

3.8

3.3

12/22e

4,125

62.0

12.74

3.00

6.0

3.9

12/23e

4,370

60.0

12.03

3.30

6.4

4.3

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **Restated.

H122 performance remains resilient

In its H122 pre-close update, Lookers has indicated that its trading performance has been ahead of management expectations. It now sees H122 underlying PBT of around £45m (H121 £50.7m), which is more resilient than expected as the overall mix of market dynamics remains favourable. In the first five months, Lookers’ new cars segment has outperformed in its brand portfolio, although overall the volume drop is broadly in line with the market decline of 8.7%. Lookers’ used car volumes fell by 8.1%. The volume falls reflect continuing supply delays for new vehicles that constrain used car availability, with a favourable effect on margins, which remain substantially ahead of H121 levels. Inflationary pressures in utility and labour costs are a significant challenge and management continues to offset these through operational optimisation. The resilience of the high-margin aftersales activity delivered good growth during the period. The financial position remains strong, with adjusted net cash balances of £62.4m (FY21 £3.0m) at 31 May 2022. The balance sheet is underpinned by property and cash assets of c 91p per share.

Demand-side challenges may intensify

Used car pricing has levelled off during H122 with many models declining slightly but nevertheless margins remain well above H121 levels. Management expects the supply and cost trends seen so far this year to persist into FY23. Increased fuel costs and the cost-of-living squeeze on households add uncertainty for consumer demand. Nevertheless, Lookers expects FY22 underlying PBT to be ahead of its previous expectations, although heavily first-half weighted.

Valuation: Uncertainty defers multiple expansion

As markets recover, we would expect single-digit multiples for car retailers to expand in anticipation of higher EPS. With volume recovery appearing to be deferred by economic factors, Lookers’ single-digit FY23e P/E rating of 6.4x remains undemanding while we await more positive market indicators.

Earnings revisions

We have increased our adjusted PBT for FY22 on slightly reduced sales expectations, reflecting the H122 volume pressures more than offset by the robust margin performance especially in used vehicle markets. Our FY23 estimates remain unchanged and could now mark the expected nadir in profitability in the current cycle. We take a conservative view of H222 cash development compared to the end May balances given experiences in FY21.

Exhibit 1: Lookers’ earnings revisions

Year to December (£m)

2022e

2023e

Prior

New

% change

Prior

New

% change

New

1,994.3

1,938.3

-2.8%

2,054.2

2,054.6

0.0%

Used

2,079.5

2,018.3

-2.9%

2,141.9

2,141.4

0.0%

Aftersales

442.1

442.1

0.0%

455.3

455.3

0.0%

Leasing

141.0

141.0

0.0%

145.2

145.2

0.0%

(425.8)

(415.1)

-2.5%

(426.6)

(426.6)

0.0%

Sales

4,231.0

4,124.6

-2.5%

4,370.0

4,370.0

0.0%

EBITDA

128.3

136.1

6.1%

137.8

137.8

0.0%

Underlying EBITA

81.8

90.8

11.0%

88.7

88.7

0.0%

Underlying OPBIT

76.8

85.8

11.7%

83.7

83.7

0.0%

Underlying PBT

53.0

62.0

17.0%

60.0

60.0

0.0%

EPS - underlying fully diluted (p)

10.88

12.74

17.0%

12.03

12.03

0.0%

DPS (p)

3.00

3.00

0.0%

3.30

3.30

0.0%

Net debt/(cash)

(32.4)

(37.7)

16.2%

(47.0)

(53.8)

14.3%

Source: Edison Investment Research estimates

Exhibit 2: Financial summary

£m

2020

2021

2022e

2023e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

3,699.9

4,050.7

4,124.6

4,370.0

Cost of Sales

(3,288.9)

(3,534.1)

(3,629.7)

(3,845.6)

Gross Profit

411.0

516.6

495.0

524.4

EBITDA

 

 

95.0

165.1

136.1

137.8

Operating Profit (before amort. and except.)

 

 

47.6

119.2

90.8

88.7

Intangible Amortisation

(4.8)

(5.0)

(5.0)

(5.0)

Exceptionals

(12.2)

(0.1)

18.0

0.0

Other

(1.6)

(2.0)

(2.0)

(2.0)

Operating Profit

29.0

112.1

101.8

81.7

Net Interest

(21.2)

(16.1)

(15.8)

(15.7)

Profit Before Tax (norm)

 

 

13.7

90.1

62.0

60.0

Profit Before Tax (FRS 3)

 

 

1.5

90.0

80.0

60.0

Tax

(6.1)

(28.8)

(15.2)

(12.6)

Profit After Tax (norm)

11.6

78.5

50.2

47.4

Profit After Tax (FRS 3)

(4.6)

61.2

64.8

47.4

Average Number of Shares Outstanding (m)

390.1

391.1

391.8

391.8

EPS (p)

 

 

2.97

20.07

12.81

12.10

EPS - normalised fully diluted (p)

 

 

2.97

19.95

12.74

12.03

EPS - (IFRS) (p)

 

 

(1.18)

15.65

16.54

12.10

Dividend per share (p)

0.00

2.50

3.00

3.30

Gross Margin (%)

11.1

12.8

12.0

12.0

EBITDA Margin (%)

2.6

4.1

3.3

3.2

Operating Margin (before GW and except.) (%)

1.3

2.9

2.2

2.0

BALANCE SHEET

Fixed Assets

 

 

714.4

702.2

715.1

726.7

Intangible Assets

190.1

187.2

192.2

197.2

Tangible Assets

399.9

399.3

396.3

413.6

Right of use asset

124.4

115.7

126.6

115.9

Investments

0.0

0.0

0.0

0.0

Current Assets

 

 

1,063.0

762.4

785.7

848.3

Stocks

655.2

511.9

511.5

541.9

Debtors

150.7

136.0

134.5

144.1

Cash

243.0

103.9

128.9

150.9

Other

14.1

10.6

10.8

11.4

Current Liabilities

 

 

(1,029.9)

(813.2)

(713.6)

(748.5)

Creditors

(913.0)

(729.6)

(713.6)

(748.5)

Short term borrowings

(116.9)

(83.6)

0.0

0.0

Long Term Liabilities

 

 

(464.6)

(281.8)

(364.6)

(369.4)

Long term borrowings

(166.8)

(17.3)

(91.2)

(97.1)

Lease liabilities

(145.5)

(136.8)

(146.8)

(146.8)

Other long-term liabilities

(152.3)

(127.7)

(126.6)

(125.5)

Net Assets

 

 

282.9

369.6

422.6

457.1

CASH FLOW

Operating Cash Flow

 

 

68.2

114.6

84.4

90.6

Net Interest

(24.3)

(21.2)

(16.1)

(15.8)

Tax

(6.1)

(28.8)

(15.2)

(12.6)

Capex

(16.8)

(17.4)

(32.7)

(34.0)

Acquisitions/disposals

0.0

0.0

28.0

0.0

Financing

0.0

0.0

0.0

0.0

Dividends

0.0

0.0

(13.7)

(12.1)

Other

(2.2)

(3.5)

0.0

0.0

Net Cash Flow

18.8

43.7

34.7

16.1

Opening net debt/(cash)

 

 

59.5

40.7

(3.0)

(37.7)

HP finance leases initiated

0.0

0.0

0.0

0.0

Other

0.0

0.0

0.0

(0.0)

Closing net debt/(cash)

 

 

40.7

(3.0)

(37.7)

(53.8)

Net financial Liabilities

186.2

133.8

109.1

93.0

Source: Company accounts, Edison Investment Research


General disclaimer and copyright

This report has been commissioned by Lookers and prepared and issued by Edison, in consideration of a fee payable by Lookers. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2022 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

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Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Lookers and prepared and issued by Edison, in consideration of a fee payable by Lookers. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2022 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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