Shares in Lookers (LOOK) motored 3.6% higher to 72.5p after the automotive retailer said it expects to post record underlying pre-tax profits for 2021, ahead of the £82 million called for by consensus, having seen stronger gross margins in the fourth quarter.
Lookers also announced its intention to reinstate dividends alongside the full year results in April and outlined what Numis described as ‘a new front-footed strategy to become the UK’s leading integrated automotive retail and service group’.
‘EXCELLENT’ MARGIN PERFORMANCE
Trading in the fourth quarter was ahead of expectations, driven by ‘excellent’ new and used car margins, tight cost control and like-for-like growth in Lookers’ higher margin aftersales business.
Throughout the quarter, the well-documented global semiconductor shortage continued to pressure the supply of new and used vehicles, a dynamic which meant Lookers’ like-for-like new retail unit sales increased by 2% and used unit sales fell by 14.2%.
‘2021 was an exceptional year for Lookers and we now expect to beat our previous estimates with record profit for the year,’ enthused CEO Mark Raban.
He insisted Lookers starts 2022 with ‘an excellent new car order bank’, though in light of ongoing global supply chain disruptions, uncertainty as to the availability of new vehicles and the sustainability of used car margins at elevated levels, he believes it is ‘right to remain cautious’.
Encouragingly, Lookers closed the year to with £8 million net cash in the coffers, a dramatic improvement from a £41 million net debt position a year earlier, and drawing confidence from this balance sheet strength, intends to reinstate the dividend, suspended at the start of the pandemic, alongside the 2021 results in April.
ON THE FRONT FOOT
Lookers has already kickstarted a comprehensive review designed to future-proof the business.
‘There are many structural changes which are creating opportunities in our market including evolving consumer behaviour, electrification, and changing relationships with our brand partners,’ explained Raban.
‘We have outlined our main areas of focus in our update today and are excited about our ambition and aspiration to become The UK’s Leading Integrated Automotive Retail and Services Group.’
THE NUMIS VIEW
Following the update, Numis upped its 2021 pre-tax profit forecast by 5% to £86 million and assumes Lookers will pay a 2p final dividend for 2021.
‘We leave our outer year earnings forecasts broadly unchanged,’ said analyst Simon Bowler, ‘with full year 2022 pre-tax profit of £52 million rising to £70 million by full year 2024 though we note this only implies group revenue recovering to pre-pandemic levels which looks to lie below management’s new ambitions.’
The broker insisted ‘a more front-footed strategy may merit a higher multiple’ for the automotive retailer.
‘We await further details at the full year 2021 results,’ said Numis, ‘but note the group’s historic operational complexity and inefficiencies should offer opportunities to drive revenue and costs to support upside to the medium-term earnings profile.’
