Looking for a sector that was unloved, I first thought of housing and I then thought of car retailers. Although the sentiment is considerably more bearish in housing, there were too many companies to write anything useful. For people interested in the sector, I would suggest the Society of Motor Manufacturers and Traders as a useful industry data source (industry-wide new and used sales are most useful). Obviously, I can’t really offer any insight but it is worth noting that the important September registration data was quite good (it usually represents about 17% of the total annual volume) and was down 0.8% from last September. The estimate for the full year is 1.9m new cars against 2m for 2010. However, even 2m was the second lowest number sold since 1995. We should remember that the first half of last year was unusually strong due to the scrappage scheme in March (some suggest that this added about 100,000 registrations). So the general view is that the market is improving but sales are still way down compared to anything in the past 15 years.

Lookers (LON:LOOK)

Lookers currently trades for around £200m. It has a new, used and aftersales divisions as well as a parts division (providing about a third of total profits). In 2010, the company achieved sales of £1.8bn with net profit of £23m, giving an earnings yield of 11.5%. Free cash flow was £18m, giving a FCF yield of 9%. The company has £60m of debt, a pension deficit of £23m and a cash balance of £30m. The company also has operating leases worth £88m. As always, the operating lease picture is somewhat complicated. The company appears to hold most of its property on long leases or freeholds but we also see some short leases under PPE. In addition, half of the operating lease commitments are due under five years which suggests quite a short maturity. Either way, the company has a book value of £190m and so the company is quite conservatively financed. The company is therefore trading at just over book value and is backed mainly by tangible assets.

The company is a much larger part of the new, as opposed to used, car market but the company is growing share in both. In addition, the company has added franchises to existing sites which is a neat…

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