Lookers

Multi-franchise car retailer Lookers, involved in both the volume and premium end of the market, is looking a razor sharp operator these days. Adjusted profits accelerated 70% to £9.8m pre-tax in the six months to June on a 12% turnover rise to £576.4m. Investors will also be treated to a 21% hike in the interim dividend, supported by healthy first half operating cashflow of £18.6m (£13.2m). Lookers also managed to outperform the new and used car markets, with new car sales up 13% compared to last year's first half and used car sales climbing 16%. Recent £31m acquisition FPS Distribution looks a great deal for Lookers. This business is a wholesale distributor of car parts, with 19 distribution centres and more than 2,400 independent motor factor relationships. As well as raising margins, FPS broadens Lookers' revenue stream, boosting its earnings potential in the fast-growing, high-margin, and non-cyclical after-sales market. House broker Numis forecasts pre-tax profits of £15.5m for this year, bringing in earnings of 31.6p a share, with 36.3p a share from £18m pre-tax by December 2005. On these numbers, Lookers looks undervalued on a multiple of 9.2, dropping to less than eight times for 2005, and offering a 4.1% prospective yield. This year should be another excellent one for the industry and for Lookers. We rate the shares a strong buy.

Sector: Automobiles & Parts

Companies: Lookers

Market cap: £98.96m

PE Forecast: 9.2

Share price: 290p

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