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Profits plunge at Lookers

The difficult UK auto retail market has led to a sharp drop in earnings
August 14, 2019

Expectations for Lookers’ (LOOK) half-year results were low after last month’s profit warning, so the shares hardly budged when management revealed a 27.5 per cent drop in underlying pre-tax profits to £29.2m in the first six months of the year.

IC TIP: Sell at 44p

The UK auto retail market is suffering due to Brexit uncertainty, combined with tightening regulation, the after-effects of the VW diesel scandal and declining car registrations. Management said an increase in people costs also contributed to the group’s drop in profitability. Still, the group managed to outperform the wider market, reporting a 1.2 per cent fall in like-for-like new car sales, versus a market decline of 3.4 per cent. This was driven by a resilient performance in fleet sales, which grew 4.3 per cent, while retail shrank 5.9 per cent. 

There was no new clarity on the Financial Conduct Authority’s (FCA) investigation into the group’s sales processes, but the group has announced a one-off cash investment of £10m to cover a review of the business, a new sales process and training, along with improvements to risk management and IT. 

Broker Numis is forecasting adjusted EPS of 7.5p in 2019, down from 10.6p in 2018.

LOOKERS (LOOK)   
ORD PRICE:44pMARKET VALUE:£169m
TOUCH:43.5-44p12-MONTH HIGH:114pLOW: 33.7p
DIVIDEND YIELD:9.4%PE RATIO:7
NET ASSET VALUE:99p*NET DEBT:19%**
Half-year to 30 JunTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20182.5841.38.801.48
20192.6524.95.171.48
% change+3-40-41-
Ex-div:17 Oct   
Payment:22 Nov   
*Includes intangible assets of £232m, or 60p pa share **Does not include lease liabilities of £100.2m