# Lookers PLC FY results, good DPS beat

- Link: https://www.directorstalkinterviews.com/lookers-plc-fy-results-good-dps-beat/412725094
- Published: 2017-03-08T07:32:37+00:00
- Author: Giles Arbor

**Lookers PLC** (LON:LOOK) has delivered a solid set of FY results, with adjusted
EPS coming in 1% ahead of our forecast at the adjusted EPS level. The dividend also
beat our forecast by 7% and was +17% YOY indicating its confidence for the future.
Net debt was higher than we anticipated, albeit the balance sheet remains strong
with net debt/EBITDA running at 0.6x following the parts disposal. The trading outlook
remains robust, with the new car order book for March progressing well. We are maintaining
our cautious forecast assumptions for now, and believe the valuation remains undemanding
given the high level of execution we have seen to date.

**FY results:** Lookers have delivered a solid set of results, which are again at
record levels for the eighth successive year, with adjusted PBT more than double
that delivered in 2012. Revenues were +17% YOY and 15% ahead of our forecast, with
gross profit of £504.2m ahead of our forecast of £485.4m. The gross margin did fall
60bps YOY to 11.8% to reflect the changing mix of the business towards new cars.
Adjusted EBIT (ex share based payments, debt issue costs and pension costs) was 
0.7% ahead of our forecast at £94.7m with margins -20bps YOY. Interest costs were
higher than our forecast of £16.0m at £17.6m due to higher levels of working capital,
with adjusted PBT coming in 1% below our forecast at £77.1m (ZC £78.0m). Adjusted
EPS was 1% ahead of our forecast due to a lower tax charge, and was +4% YOY. The
dividend was +7% ahead of our forecast at 3.6p and +17% YOY reflecting its confidence
in the future. Net debt at £74.1m was higher than our forecast of £42.9m due to 
working capital and new acquisition related debt. That said, the balance sheet remains
strong with net debt/EBITDA running at 0.6x.

**Key themes –** New car revenue was +20% YOY or +10% on a LFL basis, with fleet
a big driver behind this and +16% or +13% on a LFL basis. The Group has put more
focus into this business and careful not to take low margin business. Gross profit
from new cars was +11% YOY showing good pricing discipline. Management are more 
optimistic than most on the new car market, and expect this to be flat YOY albeit
do not comment on profitability. Used cars also remained strong and was +19% in 
revenue terms of +7% on a LFL basis with gross profit increasing +17% or +7% on 
a LFL basis. We view this as a very strong performance given the pace of growth 
of this business during the last 4 years. Aftersales saw gross profits +18% YOY 
or +9% on a LFL basis, with margins flat YOY, which we believe bodes well for the
near-term profitability of the Group.

**Forecasts –** We reduced our forecasts last year to reflect the impact of the 
Parts disposal, and made a further downgrade in November in line with our sector
thesis assuming a 10% fall in new car sales coupled with cost pressures. We are 
maintaining our forecast assumptions for now, and are likely to remain at the bottom
end of the consensus range this morning.

**Investment view:** As with the rest of the sector, the Lookers PLC valuation is
undemanding, trading on a 2017E P/E of sub 10x based on cautious assumptions and
an EV/EBITDA of 5.7x. Our underlying forecasts could well prove to be too conservative,
and we would also expect management to look at acquisitions this year given its 
strong balance sheet providing such opportunities can hit its hurdle rates.

Share on: