Lookers PLC (LOOK) is an Altrincham, the United Kingdom-based group, which operates as motor retail and aftersales company. The company’s business is differentiated in three division: Automotive, Agricultural and Leasing. The company’s operations cover all four UK constituent countries and the Republic of Ireland where it functions through the sale of new and used cars and aftersales services.
Lookers PLC, the British car dealer has lowered its estimated full-year profits as doing business in the current market scenario has become really challenging due to weak demand which led to a significant plunge of 30 per cent (more than a decade low) in its stock prices and might reduce to half of their value this year. There are several political and environmental factors which are impacting the UK car market. Firstly, Britain is approaching an exit from the EU (European Union). Secondly, the car industry across the globe is shifting towards electric or hybrid cars which are using more cleaner fuels thereby converging towards zero fuel emissions. Therefore, the consumer is unable to decide considering the uncertainty in the political and economic scenario. The consumer with an urgent requirement looks forward to used car markets which translate to lesser margins.
The company is looking forward to new leadership. Robin Gregson, company’s CFO has decided to step down from his position after 10 years. He has played an important role in achieving operational and strategic excellence for the company. This move comes across as part of successor planning. The company will appoint Mark Raban on the board as CFO with effect from 15th July 2019. Mark has a cumulative experience of 30 years in multi-channel (retail). Robin will stay with the company until 30 September 2019 to ensure a successful handover.
As per the half-year trading update released on 12 July 2019, Q2 has proved increasingly more challenging. The UK new car market continued to see lesser registrations, down by 4.6 per cent in Q2 as against -2.4 per cent in Q1. Furthermore, weaker demand prevailed in the UK car market due to uncertain regulatory guidelines. This resulted in declining margins in the used car market. The company continues to feel pressure regarding an increase in the cost of factors of production throughout H1. As a result, the company has lowered the projections of the underlying PBT (profit before tax) for H1 FY19 to £32 million as against £43 million in H1 FY18.
As per the Q1 FY2019 Trading Update (released on 31st May 2019), New cars market segment contributed 32 per cent of the gross profit (GP) for the company. In the UK, total new car registrations declined by 2.4 per cent to 701,036 cars in Q1; current industry forecasts by The SMMT (Society of Motor Manufacturers & Traders) for the current year was 2.3 million. Turnover of new cars surged by 3 per cent and total gross profit from new cars increased by 4 per cent. On a like for like basis, Turnover and gross profit were maintained at a similar level to the prior year same period.
Used cars contribute 25 per cent of the total gross profit. Turnover of used cars increased by 8 per cent. Gross profit from used cars increased by 2 per cent as compared with the previous year. On a like for like basis, turnover rose by 6 per cent and gross profit climbed by 1 per cent.
Aftersales market contributes 39 per cent of total gross profit. Turnover of aftersales increased by 11 per cent from the prior year and Gross profit surged by 9 per cent at a slightly lower margin. On a like for like basis, turnover climbed by 9 per cent and gross profit rose by 6 per cent.
The present political environment, exchange rates and Brexit create a degree of uncertainty in the United Kingdom economy.
Financial Highlights – FY2018 (£, million)
The company’s reported turnover surged by 4 per cent to £4,880 million due to growth from used cars and aftersales this year as compared with the financial year 2017 of £4,696 million. Gross profit surged by 2.4 per cent to £516 million this year as compared with prior year data, while gross profit margin was 10.6 per cent. Adjusted PBT (profit before tax) plunged by 1.6 per cent to £67.3 million as compared with the financial year 2017 of £68.4 million. Profit before tax stood at £53.1 million. Adjusted earnings per share climbed by 0.8 per cent to 14.68 pence this year against the 14.57 pence in FY17, while earnings per share were 11.07 pence. The board proposed a final dividend per share of 2.60 pence and total dividend per share surged by 5 per cent to 4.08 pence this year as compared with the financial year 2017 of 3.89 pence.
The company’s net interest costs surged by 13 per cent to £18.3 million due to higher levels of working capital and revision in bank rates from time to time. The interest payable by the company is based on floating rate and historical rate together.
The company’s total new car turnover was down by 3.3 per cent and 3 per cent on the LFL (like-for-like) basis. The company’s total used car turnover was up by 14 per cent on the LFL basis as the company looks to enhance its footprint in the market. The company’s aftersales revenue was up by 6 per cent on an absolute basis and 7 per cent on an LFL basis largely due to the surge in profits. The rise in the cost of factors of production such as property, employee’s salary and IT infrastructure were highlights of the period. The company made consistent efforts and continued to invest in dealerships for improvement and serve customers better. The company acquired the Jennings group as a part of their strategy to expand its footprint in the North-East region by partnering with Ford. The tax obligation of the company stood at £9.6 million for the year as against £10.5 million in FY17.
The company’s Cash from operations for the year stood at £79.4 million as against £79.7 million in FY17. The company’s Networking capital surged by £10.1 million this year. The inventory reduced by £1.4 million. There was a decline company’s AR (accounts receivable) as well as AP (accounts payable) to the tune of £48.9 million and £60.4 million respectively, representing the movement in net working capital.
This year Capex was reduced to £25.7 million by the company as against £46.1 million in FY17. Mostly, Capex comprised of expenditure on new or improved premises for dealerships to create modern and best in class facilities. The company generated £35.1 million from the sale of properties and dealership businesses this year as against £8.0 million in FY17. The company’s net capital receipt stood at £9.4 million this year. The company repaid its loan of £14.6 million this year as against £12.5 million in FY17.
The company’s net debt plunged by £10.9 million to £86.9 million due to an increase in cash flow this year. Net debt is a function of gross bank borrowings minus the company’s cash balances.
Lookers PLC Share Price performance
Daily Chart as at July-12-19, before the market close (Source: Thomson Reuters)
At the time of writing (as on July 12, 2019, at 05:04 PM GMT), shares of Lookers PLC were quoting at GBX 38.05 per share; down by 17.9 per cent against the yesterday’s closing price level. The company’s market capitalisation (outstanding) stood at £180.05 million.
In the last 52-weeks, shares of Lookers PLC have registered a high of GBX 113.60 (as on Sep 14, 2018) and a low of GBX 33.70 (as on Jul 12, 2019). At the current trading level, as quoted in the price chart, its shares were trading 66.50 per cent below the 52-week high price level and 12.9 per cent above the 52-week low price level.
The stock’s volume (before the market close, at the time of writing) stood at 9,731,535. Stock’s average traded volume for 5 days was 974,516.20; 30 days- 1,068,414.77 and 90 days – 613,899.67. The average traded volume for 5 days was down by 8.79 per cent as compared to the 30 days average traded volume. The company’s stock beta was 0.7, reflecting lower volatility as compared to the benchmark index with a dividend yield of 9.5 per cent.
The shares of the company (at the time of writing) were trading below the 30-days and 60-days SMA, which shows a negative trend in the stock price movement and could further move down from the current trading levels.
In the past 1 year, shares of Lookers PLC have delivered a negative price return of 56.44 per cent. Also, on a year-to-date basis, the stock was down by approximately 49.84 per cent and plunged by 51.31 per cent in the past three months.
Share’s RSI for the 30-days, 14-days and 9-days stood at 24.96, 19.55 and 17.79 respectively. Also, the stock’s 3-days RSI stood at 18.97. The volatility of the stock for 200 Days, 90 Days, 30 Days stood at 48.40, 60.14 and 91.47 respectively.