Lookers PLC (LON:LOOK) is the topic of conversation when Zeus Capital’s Head of Research Mike Allen caught up with DirectorsTalk for an exclusive interview.
Q1: Lookers, they published their year end results today, can you talk us through them?
A1: The results were 3.5% ahead of our forecasts at the adjusted PBT level and 11% ahead at the adjusted earnings levels as well and that was due to lower than anticipated tax charge. Within those results, there was a £7.7 million profit on the sale of property however, there were also £3.8 million of organisation costs absorbed within that number as well. So, it’s slightly below what they did last year, the £68.4 million, however, we have had a very tough market backdrop and they have made a number of portfolio changes as well and clearly, there’s been a rise in cost environment.
So, I think all in all given the headwinds, it’s a good performance.
Q2: Did you note any themes in those results?
A2: I think the real theme probably was the ongoing growth in the used car business and we saw like-for-like revenues of plus 14% there as it concedes to grow its presence in that market.
Aftersales was also plus 7% on a like-for-like revenue basis as well which I think is a very strong performance. New car revenues were down 3% on a like-for-like but gross profit per unit did increase so there was some control there. I think, clearly, they have taken a careful eye on cost management as well.
Q3: Have you had to tweak your forecasts in any way?
A3: No, I think the company is saying that the key March order book is building in line with expectations, so our forecasts were at the lower end of the consensus range and we’re happy to stay there at the moment given the current political and economic uncertainties. I think given what they’ve done in their used car and aftersales business, we’re confident that they can continue to fight against that market headwind.
Q4: Finally, how do you view Lookers plc valuation at the moment?
A4: Again, we think it’s attractive. A PE of just sub 8 times, EV/EBITDA running at around 4 times as well, you’ve got a free cash flow yield approaching 10% on this business and a dividend yield just in excess of 4%.
So, we think that’s an attractive valuation in the context of the execution that we’ve seen to date and the strength of the business. Also, the balance sheet is extremely strong as well with net debt EBIDTA below 1 times and likely to fall in the absence of any acquisitions.
