Lookers' brighter outlook

Published on Monday 1 June 2009 20:41

Scrutineer

Lookers

53.5p +1.5p

A FURTHER fillip was given to car dealer Lookers' slowly-recovering share price yesterday, when the group said it had signed new banking facilities with lenders for 210 million, maturing in 2012.

It came with the publication of the group's audited results for 2008, first published in unaudited form a month ago, that showed Lookers suffered a 43 per cent fall in underlying profits to 14m (24.5m) last year.

The near 3 per cent lift in the share price will also be some consolation for the axing of any dividend at the group before June next year, which the banks insisted on as part of the refinancing. This stipulation by the banks was always virtually a given.

Lookers also pleased the market by saying like-for-like sales in the first three months of 2009 were 7.5 per cent ahead of the market.

The company's scale probably gives it an advantage here, although its strong Northern Ireland exposure could continue to be a disadvantage before economic recovery comes.

While the UK market for new car sales fell 11 per cent last year, Northern Ireland, where Lookers is the clear market leader, was down 18 per cent. That meant Lookers' new car sales across Britain and Northern Ireland fell by 12 per cent, greater than the sector average.

There are other positives, however. The automotive market has its work cut out in the current climate, but it does look like Lookers has positioned itself well for when the upturn does come.

The group will benefit from 12m of cost savings in the current year, given that it bit the bullet in 2008, with the closure of loss-making businesses and a restructuring of its franchise network that saw it exit 21 satellite and main market franchises.

Lookers' strong after-sales and after-market operations are also likely to be increasingly important to offset difficult new car sales, as we remain in virtually unprecedented tough times for the industry, even with the government's vaunted scrappage scheme.

Customers are far more likely to concentrate on car maintenance and repair than forking out for new vehicles in the recession, and possibly for some while in the period of relative stagnation that is likely to follow. This was the case in 2008, when Lookers' franchise after-sales revenue rose 5 per cent.

In a similar vein, the group's parts distribution business had a good year in 2008, posting 8 per cent growth in gross profit.

Either way, though, companies need as strong a financial underpinning as they can get in this difficult trading climate. As such, the importance of Lookers' new facilities with the banks cannot be overstated.

I rate the stock a hold, or a sell-and-take some profits – but certainly not a buy.

Greater resilience in a downturn is far from the same thing as having growth potential in the tank. It will be a quite a while before the motor industry (General Motors, Chrysler et al) can say that again.

BUSINESS is said to be concerned that the government's alarm and navel-gazing on the MPs' expenses scandal is an unwelcome distraction from sorting out the troubled economy.

I think the concern is misguided: there is very little the government can now do to ameliorate this recession. Things will simply take their course.

It is a myth at the best of times that governments have this huge amount of power over the economy. (Gordon Brown claimed to have abolished boom-and-bust. But somebody forgot to tell boom-and-bust.)

The government acted purposefully to stop our banking sector imploding and made a good fist of it.

That was its main contribution to helping our battered economic prospects. But a more nebulous burst of sterile initiative-itis now would do nothing to help business.

Manufacturing figures out yesterday showed the worst may be over for that sector. Interest rates remain low, helping our exporters. And destocking seems to have reached the low point. However, unemployment is still set to rise further as the world painfully makes its way through the recession.

To say the politicians should turn away from their obsession with the expenses-pasting they are deservedly getting in the media in order to focus on economic issues is just a delusion.

In the real world, nothing is going to be done about Britain's frightening level of indebtedness and the public sector's ivory towers ("recession, what recession?") until after the next election.

And stripping those two tasks out of the equation, the government can do little with the current economic mess except sit on its hands and keep its fingers crossed for the data each month like the rest of us.

In this instance, keep-your-spirits-up political soundbites that we can disregard are preferable to hollow actions.

Bryan Johnston of Brewin Dolphin

ONE TO WATCH

Exchange Traded Funds (ETFs)

SINCE 9 March, the main market benchmarks have risen by anything up to 25 per cent. In part, this is a reflection of relief that the important spring results seasons on both sides of the Atlantic, anticipated with a great deal of nervousness, did not deliver the industrial Armageddon that so many had anticipated.

If markets were perhaps somewhat oversold in March – and there are still "analysts" who believe the benchmarks have yet to plunge to their true depths in this cycle – then it could be argued that things may now be looking a little over-stretched.

Certainly, the summer months may lack inspiration unless enlivened by the odd takeover battle and it could well be the autumn before any real prospect of a more sustainable stance develops.

Some investors may be seeking to lock-in recent gains but, for many, the rally has simply taken prices back to levels at or about the original cost of entry. As an alternative to selling individual shares in the hope of being able to buy them back at somewhat lower levels, there may be a case for acquiring the insurance offered by a short Exchange Traded Fund (ETF).

ETFs cover a broad spectrum of geographic and industrial sectors. They are open-ended index funds, listed on the stock exchange. They attract pretty low management fees and can be held in ISAs or SIPPs; they are also exempt from stamp duty. For investors who believe the market is a little overcooked, the DBX-Trackers FTSE100 Short ETF (Ticker XUKS) could be worth considering. It has exactly mirrored, in reverse, the general market trend, peaking at more than 15 in March before falling back to current levels. It offers no income and should be regarded as a high risk, short-term instrument but, as such, might have appeal for anyone uneasy about the market's current outlook.

&#149 The value of your investment could fall and you may get back less than you invested. You should take professional advice if you have any doubt about the suitability of this company for your portfolio.

Daniel Stewart confident after 1m share placing

SMALL BUT BEAUTIFUL

DANIEL Stewart, the stockbroker and corporate financial adviser that works with smaller and medium-sized firms, yesterday announced it had conditionally placed 52.5 million new shares.

Investors will pay 2p for each of the shares, raising about 1 million for Daniel Stewart, which has offices in London, New York and Manchester.

The broker has also appointed Christian Wiss as its new head of sales. He joins from NZB Neue Zurcher Bank, having also been senior vice-president at Fox-Pitt, Kelton and a director of Dresdner Kleinwort Wasserstein.

Peter Shea, chief executive of Daniel Stewart, which has a market cap of about 8m, said: "The company welcomes the interest shown by investors who have participated in the placing, strengthening its shareholder base and, together with the appointment of Christian, feels confident that we can continue to grow the business, creating value for shareholders."

The company added: "Application will be made for the new ordinary shares to be admitted to trading on AIM and dealings are expected to commence on 15 June.

"The new ordinary shares will rank pari passu (equal rights] with the existing ordinary shares."

Mixed day for oil firms as Dana dips but Cairn surges

SCOTS STOCKS

DANA Petroleum shares pulled back from Friday's gains as the company yesterday appeared to subtly ease its production guidance – for the third time this year.

A statement accompanying Dana's AGM in Aberdeen said the FTSE-250 explorer expects to produce around 43,000 barrels of oil a day (boepd) in 2008.

In March Dana gave a range of 43,000-47,000 boepd, and a fortnight ago it said it expected production to be towards the lower end of that range.

Now it appears likely to be right at the bottom. Shares dropped 11p to 1,301p.

Cairn Energy shares climbed another 7.3 per cent yesterday as Goldman Sachs increased its target price on Cairn India shares by 21 per cent. Shares closed up 182p at 2,672p.

Shares in West Africa-focused Bowleven rose after it released an independent report into the contingent reserves in its Etinde Permit, which said the most likely scenario was 53.1 million barrels of recoverable oil, up from the 40 million barrels the company has previously guided the market to. Its shares rose 6.25p to 70.5p.

I-Design, the Aim-listed group which provides a platform for banks to sell advertising on cash machine screens, fell to a fresh low in the wake of last week's profit warning. Shares closed down 1.5p at 12.5p.