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Lookers beats the national average on EV sales

A strong order book is in place for the remainder of 2022, but demand could falter as the economy sags
August 24, 2022
  • EV sales up by more than the national average
  • Margins up on new vehicle sales

Lookers (LOOK) turned in a solid if unspectacular half-year performance even though trading has been hampered by inflationary pressure and vehicle supply disruption. However, everything is relative. Readers will recall that the auto dealer’s full-year figures for 2019 were the subject of an investigation by Grant Thornton, which shed light on significant accounting errors. Profits had been overstated by £25.5mn over several years and the group was forced to beef up its governance, compliance, and risk management controls. All this took place against the backdrop of the initial Covid-19 lockdowns, so it’s fair to say that management has been doing its share of fire fighting over the past couple of years.

The share price has retraced significantly since the five-year low-point of 11p at the end of March 2020, including a rise of 18.7 per cent over the past 12 months. But the dealership finds itself operating in an industry which is still in a state of flux. Perhaps electrification points the way forward. The proportion of electric/hybrid vehicles within new car registrations has continued to rise, and this is reflected in Lookers’ sales mix. The percentage of electric vehicle (EV) sales came in at 17.8 per cent, a sizeable increase from the 12.5 per cent recorded in HY 2021, and well in advance of the national average.

Understandably, the focus on this corner of the auto market has increased and will continue to do so. But management will also be looking at measures to mitigate supply chain inflation. The global semiconductor shortage continues to hobble the new car market with nationwide registrations down by 11.1 per cent. The group’s new vehicle sales represented a smaller proportion of overall revenues, but demand levels strengthened as Covid-19 restrictions eased, so the imbalance of supply and demand fed through to a 221 basis point increase in the gross margin to 8.7 per cent as the group worked through its stock.

Although sales of used vehicles represented an increased proportion of total revenue, like-for-like unit sales declined by 8.3 per cent. The gross margin on used car sales was also in retreat, although comparisons aren’t altogether that meaningful given the unprecedented factors that buoyed the market in used vehicles through 2021.

The market responded positively to the interim figures and management confirmed that Lookers has a strong order book in place for the remainder of 2022. Bearing this in mind, a forward rating of six times consensus earnings is hardly prohibitive, but there is a chance that vehicle purchases could trail away significantly as confidence in the economy wanes. Hold.

Last IC View: Hold, 90p, 7 Apr 2022

LOOKERS (LOOK)   
ORD PRICE:80pMARKET VALUE:£312mn
TOUCH:78-80p12-MONTH HIGH:102pLOW: 54p
DIVIDEND YIELD:4.4%PE RATIO:4
NET ASSET VALUE:105p*NET DEBT:17%
Half-year to 30 JunTurnover (£bn)Pre-tax profit (£mn)Earnings per share (p)Dividend per share (p)
2021 (restated)2.1550.46.25nil
20222.2349.910.31.00
% change+4-1+65-
Ex-div:20 Oct   
Payment:25 Nov   

Includes of intangible assets of £186mn, or 47p a share