This report is an updated version of the report published on 28^th April 2022 at 09:14 AM GMT+1

Lookers PLC (LON: LOOK)

Lookers PLC (LON: LOOK) is an FTSE All-Share index listed UK-based motor retail and aftersales company. Furthermore, the Company is engaged in the sale of new and used vehicles through retail, motability, fleet and leasing channels. It also provides an aftersales business that offers servicing, parts, repair, MOT, and body repair.

Recent trend of dividend payments

LOOK will pay a FY21 final dividend of 2.50 pence per share on 24 June 2022, while the ex-dividend date will be 19 May 2022. In comparison, the Company had not paid any dividend for the prior year.

Growth Prospects

• Strengthening of Brand Partner Relationships: The Company remained committed to growing its OEM relationships as it had plans to introduce further new pure EV brands into the UK market in 2022 and 2023. Moreover, the Company aimed to collaborate with several OEM (“Original Equipment Manufacturer”) Brand Partners.
• Developing Aftersales Revenue Streams: The Company aims to develop and implement new products to raise penetration in the valuable aftermarket. LOOK will also seek to grab the opportunities in the growing cosmetic repair market.

Key Risks 

• Weak Industry Prospects: According to the Office for National Statistics, UK retail sales dropped more than expected during March 2022 because of the record inflation hurting consumer demand.
• Federal Reserve Meeting: Federal Reserve Chairman, Jerome Powell, had hinted at an 0.5% increase in interest rates in the next Federal Reserve meeting due in early May 2022.
• Record UK Inflation: British inflation hit a 30-year high of around 7.0% in March 2022, which may cause a further interest rate hike.
• Semiconductor Shortage: The ongoing semiconductor shortage would see new car supplies constrained for the remainder of 2022. Thus, it may adversely impact LOOK’s top-line business in 2022.

Key Fundamental and Shareholders Statistics of Lookers PLC. 

Bramall (Douglas Charles Anthony) is the most significant shareholder as it holds nearly 78.60 million shares.

FY21 Financial Highlights (for the 12 months ended 31 December 2021, as of 06 April 2022)

(Source: Company Filings)

• Decent Top-line Business: The Company’s top-line business went up by around 9%, from £3.70 billion during FY20 to £4.05 billion during FY21.
• Robust Profitability: The Company switched into profitability during FY21 and reported a basic earnings per share of 15.65 pence in the period.
• Net Funds: LOOK further strengthened its financial position and reported a net funds of £3.0 million as of 31 December 2021.

Share Price Performance Analysis

(Source: Refinitiv, Research done by Kalkine Group)

On 28 April 2022 at 08:14 AM GMT+1, LOOK’s shares were trading at GBX 77.00, down by around 2.65% against the previous day closing price. Stock 52-week High and Low were GBX 102.00 and GBX 53.59, respectively.

On a daily chart, the stock price is sustained around the lower Bollinger band. Hence, there could be an uptick in the stock price in the near term. Also, the 14-days RSI of 31.64 indicates an oversold territory.

Valuation Methodology: Price/Earnings Approach (FY22E) (Illustrative)

Business Outlook

The Company had delivered FY21 results significantly ahead of the expectations set at the beginning of 2021, with a substantial growth across all financial metrics. Moreover, the Company had delivered a strong trading performance during Q1 FY22 despite the new vehicle supply remaining tight. LOOK has a clear strategy to navigate ongoing challenges caused due to significant increase in the cost of living, putting pressure on consumer sentiment and disposable incomes. Overall, the Company remained confident regarding the opportunities ahead and would continue to drive value for all shareholders. 

Please note markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Considering the strong FY21 results, robust balance sheet, resumption of dividend payments, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Lookers PLC at the current market price of GBX 77.00 (as of 28 April 2022 at 08:14 AM GMT+1), with lower-double digit upside potential based on 8.18x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and is subject to the factors discussed above.

Note 3: Target Price refers to a price level that the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenario.

Note 4:  Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.

Note 5: Dividend Yield may vary as per the stock price movement.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices. 

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