Lookers PLC (LON:LOOK) has once again demonstrated good growth in challenging conditions, with clear outperformance against the market. We are maintaining our forecasts at this juncture, and have made some conservative assumptions from 2018E based on our cautious sector stance. That said, we do believe the shares are oversold particularly in the context of its balance sheet flexibility, undemanding valuation and progress delivered to date based on strong management execution across all areas of the business. We also note the attractive dividend on offer and commencement of its £10m share buyback programme.
Final results: Lookers has delivered final results, which are 2% ahead of our forecasts at the adjusted PBT level and +5% YOY. Adjusted EPS was +1% YOY and 7% ahead of our forecast due to a lower tax charge. The total dividend for the year was +7% YOY and 5% ahead of our forecast. There were no exceptional items in these results, despite c£2m of re-structuring costs incurred during the year. Net debt at £97.8m was higher than our £69.1m forecast due to a delayed disposal and higher working capital levels than anticipated. That said, net debt/EBITDA remained below 1x with total banking facilities amounting to £225m, with a £10m share buyback programme underway.
Key themes: Lookers once again outperformed the market here with total revenue in this division +12% and +3% on a LFL basis indicating it continues to take market share. Used car revenues +18% YOY or +12% on a LFL basis, with gross profit +27% or +15% on a LFL basis. At the heart of its success here remains its digital offering. Aftersales remains resilient with revenues +16% YOY or +4% on a LFL basis, with gross profits +14% and +3% on the same basis based on flat margins. Further initiatives are being undertaken this year to improve customer experience and retention levels, which will be key in the current environment.
Forecasts: We are maintaining our forecasts on the back of these results, albeit we are at the bottom end of the consensus range. We would expect to see earnings downgrades elsewhere this morning.
Valuation: Despite our below consensus forecasts from 2018E, we believe the Lookers Plc valuation is very undemanding, with the stock trading on less than 8x 2018E EPS and an EV/EBITDA below 5x backed with an asset rich balance sheet, an attractive dividend yield approaching 5% and a proven management team that continues to execute well in a challenging market.
