US Edition Inchcape
393.6p +2.1p
Questor says Buy
Figures from the Society of Motor Manufacturers and Traders showed that UK car sales fell 7.7pc in February compared with last year and the end of the scrappage incentive means this decline is likely to be maintained through the year.
Questor only has Lookers in its portfolio because of its growing aftersales business. Inchcape, which is by far the largest British-listed dealer, with a market capitalisation of £1.8bn, was warning yesterday of an "uneven global recovery" and "margin erosion" from increased costs for vehicle manufacturers.
It is forecasting declines this year in four markets - Singapore, Greece, Belgium and the UK - which represent half of group sales.
However, alongside the cautious outlook is a car dealer that does merit passing the green light.
The key is that Inchcape operates in 26 markets and is the market leader in 14 of them. So, while European revenues fell by 13.4pc to £871m last year, this division accounts for only 15pc of sales and its decline was offset by the performance of Australia, China and Russia.
Overall, pre-tax profits jumped 41pc to £192m on revenues 5.4pc higher at £5.89bn, while Australasia accounted for £1bn of sales and Russia and emerging markets another £1.1bn.
Not only are the emerging markets set for further growth in car sales - chief executive Andre Lacroix picked out Hong Kong, Australia, Russia and South America in particular - but Inchcape has also secured a foothold in the flourishing luxury car segment.
In China, for example, Inchcape sells Jaguar and Land Rovers, and the success of the British brands has allowed it to prepare for a £170m expansion in the country over the next five years.
Mr Lacroix says Inchcape is "uniquely positioned to take advantage of the premiumisation of these markets" as the middle class grows and seeks a higher quality of life. Also, he claims that the luxury brands Inchcape works with will be at "the forefront of their competitors in their leading-edge development of hybrid and electric vehicles".
Financially, Inchcape can invest in these opportunities with a net cash pile of £206m, amassed following the upturn in fortunes last year and a deferral in some capital expenditure. This cash pile has also led to the company reinstating the dividend for the first time since 2009. A payment of 6.6p per share will be made to shareholders.
Inchcape's share price has rallied from 65p in March 2009, when the dividend was scrapped, a rights issue was launched and Questor warned investors to avoid the shares. It has been on a sustained rise since August, when it stood at 253.20p.
Compared to Lookers and UK rival Pendragon, Inchcape is not cheap, trading at 11.7 times 2011 earnings and a yield of 2.4pc. However, Questor believes the company's global reach and potential undermines the relevance of this comparison. Buy.