Lookers PLC (LON: LOOK)

Lookers PLC (LON: LOOK) is a 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.

On 13 April 2022, the Company will release final FY21 results for the 12 months ended 31 December 2021.

Growth Prospects (also covers trading update released on 07 January 2022)

• Expanding OEM Relationships: The Company remained committed to growing its OEM relationships as it entered a new and expanding agency relationship with Polestar during FY21.
• 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.
• Repayment of Government Grants: The Company had managed to repay all CJRS grants received for FY21.

Key Risks 

• Interest Rate Hike: The Federal Reserve announced a first interest rate hike (by 0.25%) in over three years and indicated seven rate hikes in 2022.
• Ukraine Tension: The mounting concern over the Russian invasion in Ukraine can continue to weigh on the equity market.
• Semiconductors Shortage: The ongoing global shortage of semiconductors would continue to put pressure on the supply of new & used vehicles.
  

Key Fundamental and Shareholders Statistics of Lookers PLC.

TDR Capital, L.L.P. is the most significant shareholder as it holds nearly 78.00 million shares as of 31 December 2021.          

H1 FY21 Financial Highlights (for the six months ended 30 June 2021, as of 09 September 2021)

 (Source: Company Filings)

• Robust Top-line Business: The top-line revenue grew by around 37.1% from £1,570.6 million during H1 FY20 to £2,153.2 million for H1 FY21.
• Profitability: The Company had generated a recordunderlying profit before tax of £50.3 million during H1 FY21. In comparison, it had reported an underlying loss before tax of £36.5 million for an equivalent period of the prior year.
• Balance Sheet: The Company has produced a strong cash generation with net cash of £33.0 million as of 30 June 2021, positively driven by strong trading performance, continued working capital control and cost discipline.

Share Price Performance Analysis

(Source: Refinitiv, Research done by Kalkine Group)

On 17 March 2022 at 08:00 AM GMT, LOOK’s shares were trading at GBX 80.00, down by around 0.62% against the previous day closing price. Stock 52-week High and Low were GBX 102.00 and GBX 47.43, respectively.

On a daily chart, the stock price is sustained between the lower Bollinger band and the middle Bollinger band. Hence, there could be an uptick in the stock price in the near term. Also, the 14-days RSI stood at ~43.91 levels.

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

 Business Outlook

The Company ended FY21 with a record underlying profit before tax ahead of the Company’s compiled market consensus. Moreover, the Company would continue to invest in the business and reinstate dividend payments along with the release of FY21 full-year results. Meanwhile, it kickstarted FY22 with an excellent new car order bank. However, the ongoing supply chain disruption would adversely impact the availability of new vehicles and the sustainability of used car margins at current levels. Overall, the Company remained confident regarding the opportunities ahead and achieve its financial expectations.

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 balance sheet, solid profitability, decent top-line business, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Lookers PLC at the current price of GBX 80.00 (as of 17 March 2022 at 08:00 AM GMT), with lower-double digit upside potential based on 8.67x 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 scenarios.

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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