Lookers on track for FY as used car segment offsets weakness in new cars
By Michele Maatouk
Date: Wednesday 07 Nov 2018
(Sharecast News) - Car dealership chain Lookers said on Wednesday that full-year results should be in line with market expectations despite disruption from new emissions regulations, as a solid performance from the used car and aftersales segments offset weakness in new cars.
In an update for the third quarter, Lookers said the UK new car market in September reduced by 20.5% compared to the previous year, having increased by 23.1% in August, mostly due to a shortage in the supply of vehicles that had not been tested under the new Worldwide Harmonized Light Vehicle Test Procedure emissions regulations that took effect on 1 September.
"Against this background, we are pleased to report a very respectable result for the important month of September, despite the challenges in the supply of new cars. We were able to mitigate the effect of the reduced volumes in the market and take advantage of this short supply by improving our margins on new cars across the quarter as a whole," it said.
The company said it expect to see higher levels of vehicle sales in the final quarter of the year, with recent supply issues easing as further vehicles pass through the new testing regime.
Turnover and volumes of new cars fell by 7%, in line with the wider market, while total gross profit from new cars was down 5%. However, net car margins and profit per unit were higher than the previous year.
In the user car segment, turnover increased by 10%, while gross profit rose 10%. In aftersales, meanwhile, turnover rose 5% and gross profit was 6% higher.
Numis said the update was "reassuring", particularly given the WLTP disruption across the sector.
"We view this as another period of strong operational execution as well as a demonstration of the flexibility of the business. While we cautiously edge back our FY19 estimates (by circa 6%) to reflect the industry/macro outlook, we continue to view Lookers as a resilient business, a natural consolidator, and the quality franchised operator within the sector.
"Trading on just 7.6x our revised FY19 price-to-earnings, we do not believe the share price reflects the growth opportunity in Used, cash flow dynamics that are set to improve markedly, and the potential to leverage its liquidity and track record into acquisitions."
At 1230 GMT, the shares were up 0.4% to 98.50p.
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