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Lookers PLC says profits to be materially ahead amid high demand for used cars

The car dealership chain said it was confident of beating current profit forecasts despite the “considerable uncertainty” for the final quarter

Lookers PLC (LSE:LOOK) signalled a bright outlook at the third quarter continued in top gear, with strong sales of new and used cars.

The motor dealer said management’s expectations had increased “materially” for underlying profit before tax for the full year after new car sales outperformed the wider market and used car margins combined with improved working capital discipline and tight cost controls.

Used cars are experiencing high demand as the supply of new cars is disrupted by the global shortage of semi-conductors.

While UK new car market sales declined over 31%, Lookers said it outperformed this by roughly 3.4 percentage points, helped by its “significantly improved omni-channel customer experience”.

Used car sales were down 16.9% on a like-for-like basis, versus a pretty strong period last year, though the company said this was “more than offset by unprecedented margin retention driven by ongoing strong customer demand and improvement to the group’s stock management processes”.

The company said it was confident of beating current profit forecasts despite the “considerable uncertainty” for the final quarter. 

One broker, Peel Hunt, said it was upgrading its forecast PBT by 29% to £82.6mln.

“There is a debate to be had,” Peel’s analysts said, noting that car manufacturers “appear to be shifting away from a desire to push volumes (not that there is a choice right now) to focus on margin. Similarly, the used car margin drivers are unlikely to end on 1 January”.

They pointed out that Lookers shares are trading for five times 2022 forecast earnings that are currently 33% below this years forecast earnings.

“Rising net cash balances are building rapidly and could breach £100m next year, supporting a well-covered dividend yield potential of 5+% and the prospect of buybacks.”

Read More: Lookers PLC says profits to be materially ahead amid high demand for used cars

2021-10-06 05:04:00

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