Lookers is vying to be the largest UK motor vehicle retailer, with its new car operations supported by the strength of used and aftersales activities. It operates 155 franchises, representing 32 marques from 100 sites around the UK.
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.
Market dynamics favour larger motor dealership groups against smaller independent groups, which still command c 60% of the franchise market. Global manufacturing overcapacity still points to OEM support, although market and buyer confidence is undermined by Brexit concerns, negative sentiment on diesel and PCP finance and new car supply disruption. Lookers is pursuing its strategy of focusing on the right brands in the right locations supported by appropriate levels of investment.