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Lookers Plc

Lookers PLC Deliver resilient performance

Lookers plc (LON: LOOK) has delivered a credible performance in the context of significant trading headwinds, achieving strong market outperformance across all three business divisions led by used cars and aftersales. We maintain our forecast assumptions for 2019E and beyond reflecting our more conservative market outlook. While trading headwinds persist, we continue to believe Lookers is well positioned, with a robust balance sheet and proven management team to deliver shareholders returns over the long term

Final results: Lookers has delivered FY 2018 results, which are 3.5% ahead of our forecast at the adjusted PBT level, and 11% ahead due to a lower than anticipated tax charge. These results do include a £7.7m profit on sale of property vs. £2.5m last year, albeit we believe there were also £3.8m of reorganisation costs absorbed within the 2018 number. While this is slightly below last year’s result, there has been several changes made to the portfolio against a tough market backdrop and a rising cost environment. The dividend was +5% YOY and ahead of our forecast expectations. Net debt was below last year’s levels but higher than our forecast due to working capital and the share buyback, albeit net debt/EBITDA remains below 1x on this basis. New banking facilities have been agreed of £250m to March 2023.

Key performance drivers: New car revenue was -3% on a LFL basis, albeit with gross profit per unit increasing. Within this, retail was -4.7% on a LFL basis, with fleet -5% LFL albeit some of this was to exit low margin business. The performance in used cars continues to be stellar with LFL revenue +14% as it continues to grow its presence in this market. Aftersales was +7% on a LFL basis, which again we regard as a sector leading performance. The Group also continues to make strides in developing its multi channel digital business, which should position it well for the future.

Forecasts: Despite current political and economic uncertainties, the outlook is robust with the order book for the key March market building in line with expectations. The Group also expect to make further progress in its used car and aftersales business this year. However, at this juncture we are maintaining our below consensus estimates for 2019E.

Zeus Valuation: Based on our current assumptions, the stock trades on below 8x P/E with our forecasts likely to be at the lower end of the consensus range and an EV/EBITDA below 4.5x. We believe, given management track record, the robust balance sheet and the FCF yield approaching 10% that this valuation looks attractive on a long-term basis.