SIF Folio: Lookers profit warning + is this the right time to buy H&T?

Tuesday, Jul 16 2019 by
26
SIF Folio Lookers profit warning  is this the right time to buy HT

When I added car dealership group Lookers to the SIF fund in March, I knew that it carried a fair amount of cyclical risk. What I didn’t expect was that the firm would also become the subject of a FCA investigation into its regulated activities (selling financial products).

When news of the FCA investigation was released at the end of June, I decided not to sell the shares as there hadn’t been an actual profit warning. As if to punish me for my complacency, the firm then issued a profit warning less than three weeks later, last Friday.

What’s gone wrong? In May, Lookers reported positive trading for the first quarter of the year. I found this reassuring following my purchase in March. However, this positive momentum appears to have reversed during the second quarter.

According to last week’s profit warning, new car registrations fell by 4.6% during the second quarter. Lookers also said weaker demand for used cars caused a significant increase in margin pressure. This suggests to me that gross profit and sales may have fallen in the used division.

Against this backdrop, the group says it has continued to experience cost inflation.

As a result, underlying pre-tax profit for the first half of the year is now expected to be c.£32m, down by 25% from £43m last year.

I give full marks for the company for providing clear guidance. But this is a big fall in profit. When combined with the risks posed by the FCA investigation, this warning has resulted in a big cut to broker forecasts:

5d2d8d09e30c5S1.png

Director buying: I see that the CEO and COO bought £75k and £78k of shares in the market on Monday. To put this in context, they collected total remuneration of £633k and £484k last year.

Guernsey Investments Limited, which appears to represent the Brammall family, has also added £1.6m (1.1%) to its holding, taking its total interest to 17.38%. Brammall is Lookers largest shareholder, as a legacy of the 2008 deal which saw the company buy the Brammall business.

My decision: I’m generally sceptical about coordinated director buying. But I think the continued support from the Brammall family is reassuring. If I intended to hold the stock indefinitely, I would probably average down at…

Unlock this article instantly by logging into your account

Don’t have an account? Register for free and we’ll get out your way

Disclaimer:  

As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested. ?>


Do you like this Post?
Yes
No
26 thumbs up
0 thumbs down
Share this post with friends



Lookers plc operates as a motor retail and aftersales company in the United Kingdom. The Company operates through two business segments: motor distribution and parts distribution. The motor division consists of over 150 franchised dealerships representing over 30 marques from approximately 100 locations. Aftersales represents the servicing, repair and sale of franchised parts to customers' vehicles. Its parts division operates in the independent aftermarket sector of the United Kingdom's motor retail market, where it operates through three operating companies: FPS, Apec Braking and BTN Turbo. FPS is a warehouse distributor of automotive parts. Apec Braking is a provider of dry braking (pads and discs). BTN Turbo is a distributor of turbochargers and supplier of related value added services. Its operations are also carried out across Ireland. It sells approximately 180,000 new and used cars and vans per year. In addition, it has an independent parts distribution business. more »

LSE Price
51.5p
Change
-1.0%
Mkt Cap (£m)
202.4
P/E (fwd)
6.1
Yield (fwd)
7.6

H&T Group plc is a non-trading holding company. The Company provides a range of simple and accessible financial products tailored for a customer base, which has limited access to, or is excluded from, the traditional banking and finance sector. Its segments include Pawnbroking, which is engaged in providing secured loans against collateral (the pledge); Gold Purchasing, which is involved in buying Jewelry directly from customers through its stores; Retail, which is involved in retail sales of gold and jewelry, and the retail sales are forfeited items from the pawnbroking pledge book or refurbished items from its gold purchasing operations; Pawnbroking Scrap, which comprises various other proceeds from gold scrap sales other than those reported within Gold Purchasing; Personal Loans, which comprises income from its unsecured lending activities, and Other Services, which comprises third party check encashment, buyback, prepaid debit card product and foreign exchange currency services. more »

LSE Price
357.5p
Change
5.6%
Mkt Cap (£m)
134.4
P/E (fwd)
9.0
Yield (fwd)
3.5



  Is LON:LOOK fundamentally strong or weak? Find out More »


3 Comments on this Article show/hide all

andrea34l 18th Jul 1 of 3
2

I have held H & T (LON:HAT) for a while now, and I know Graham is a fan too; the price seesaws up and down quite a bit (mostly down below my buying price), but the dividends are okay and the rating seems modest for the overall progress being made and spread of activities; the gold price is also very bullish, which I think should help.

| Link | Share
BigB 18th Jul 2 of 3
1

In reply to post #494036

One the basis of above and with BoJo as  likely PM, I'm now in. 

| Link | Share
iwright7 19th Jul 3 of 3

Rowland - I like your thought process. I see that H & T (LON:HAT) newly passes Richard Driehaus for Momentum and Screen of Screens for Quality. Significant broker upgrades for this year and next year. Counter cyclical nature has attractions also. Almost everything going for it, so have brought in with double my normal initial stake. Ian

| Link | Share

Please subscribe to submit a comment




About Roland Head

Roland Head

I'm a private investor, analyst and writer on stock markets, with a particular fondness for free cash flow, dividends and value. My main interests are UK and US stocks. I also have an interest in (profitable) commodity stocks.  I have passed the CFA Level 1 exam and hold the CFA UK Investment Management Certificate (IMC). One of my investment interests is developing rules-based strategies such as my Stock in Focus portfolio. This reflects a significant part of my personal portfolio and is the subject of my weekly column here at Stockopedia. In earlier life, I worked as an engineer in telecoms and IT. The rules-based and quantitative approach required for this kind of work undoubtedly influenced my investing style.  I also learned a lot from seeing the tech bubble deflate in 2000-1, when I was working for a very large and now defunct Canadian telecoms firm.  more »

Follow



Stock Picking Tutorial Centre



Let’s get you setup so you get the most out of our service
Done, Let's add some stocks
Brilliant - You've created a folio! Now let's add some stocks to it.

  • Apple (AAPL)

  • Shell (RDSA)

  • Twitter (TWTR)

  • Volkswagon AG (VOK)

  • McDonalds (MCD)

  • Vodafone (VOD)

  • Barratt Homes (BDEV)

  • Microsoft (MSFT)

  • Tesco (TSCO)
Save and show me my analysis