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: A pretty positive update published on the 8th of April from Lookers, what key themes did you note in the update?
A1: So, obviously the company released an unscheduled update and they were confirming that they were trading ahead of plan for the first calendar quarter of 2021. That involves selling over 44,000 new and used units during the period, which compared to 49,000 last year, where of course dealerships were closed for the entire period this year.
So, we felt that the volume activity given they were in lockdown was very strong and obviously that increased volume activity has obviously filtered through to the profitability which is good news.
Q2: Has this meant any changes to your forecast at all?
A2: Yes so prior to the update, our forecasts were ahead of consensus, but we’ve reviewed our numbers and we’re increasing them again. So, for 2021, our underlying PBT goes to £34.2 million, from £26 million, and then we filtered through an upgrade in 2022 as well where our PBT of 43.8 goes to 48.1.
Q3: What your thoughts on Lookers in terms of a valuation?
A3: We set our roadmap for the company a couple of months back and we felt that it could get over a pound based on what we believe the medium-term profit potential is so we’re still comfortable this business can generate 13.5p of earnings.
Since that note, the share price has gone up by about 70% and it’s obviously reacted well to profit upgrades etc. but if you look at the valuation on our revised numbers, it’s still on about 10 times 2021 earnings, falling seven times in 2022 with an EV/EBITDA of about four times.
So, we think there’s a little bit more to run on this and we are very comfortable that medium term price target of over 100p is achievable.