7:24 am, January 31, 2022
BCA and Cinch owner Constellation Automotive Group has taken a significant stake in listed dealer group Lookers.
Hot on the heels of its deal to buy Marshall Motor Group and take it off the stock market, the private equity-backed firm has taken a near 20 per cent stake in Lookers.
Lookers shares have rocketed 26 per cent in the last week – up to 88.6p – as rumours of a deal circulated in the industry.
Lookers issued a statement this morning which said We Buy Any Car owner Constellation had been in contact with the company about its 19.9 per cent investment in the group.
Lookers said that Constellation had ‘indicated its support of the group’s recently outlined strategy and senior leadership’.
Constellation bought 78m shares at a price of 102p per share from Tony Bramall, who stepped down as a non-executive director of Lookers in December 2020 after 14 years.
Ian Bull, Chairman of Lookers, said: ‘We are delighted to welcome Constellation as a significant shareholder of the group.
‘Their investment endorses the board’s view that the group remains significantly undervalued.
‘As outlined in our recent announcement, trading performance is strong, with an excellent new car order bank and the group has a clear strategic framework to deliver our aspiration to become the UK’s leading integrated automotive retail and services group.’
The move comes just a month after Constellation agreed a deal to buy Marshall Motor Group for £325m.
Mike Jones, automotive consultant and former chairman of accountancy firm ASE, told Car Dealer: ‘We will have to wait and see whether this represents a further investment by Constellation in a sector seriously undervalued by the market or the first move in a consolidation play within motor retail.
‘The levels of profits and cash generated by motor retailers makes them attractive investments at their stock market valuations however, with further consolidation in the sector both inevitable and desirable, this could be the first big move in the UK.’
Lookers was the fourth most profitable car dealer group in the Car Dealer Top 100 list published in November.
Despite its troubles in recent years, the dealer group managed to post an EBITDA profit for 2020 of £99m.
Lookers shares were suspended in 2020 after delays to its accounts. It battled an FCA investigation and an internal fraud probe.
But since relisting last year, the share price has steadily increased as the firm emerged from its difficult years to post a series of increased profit forecasts.
The 102p per share price Constellation paid Bramall is still below what experts believe the firm is worth.
Zeus Capital analyst Mike Allen recently told investors that a price of 109p was achievable.
He said: ‘Lookers recently announced a trading update for the full year to 31 December 2021 with an expectation of record underlying PBT that will exceed consensus of £82m.
‘We have increased our FY21 PBT forecasts by 5.9% to £86.2m. The group ended the year in a net cash position of c. £8m (vs. FY20 net debt of £40.7m) and it now intends to reinstate dividends when it announces full year results.
‘With Lookers trading at only 6.8x FY22 earnings and with a forecast FY1 dividend yield of 2.7%, we think the investment case is compelling.
‘At a conservative 10x forecast FY22 earnings, Lookers would be valued at 109p per share.
‘We think Lookers’ forward-looking, ambitious strategy will drive long-term earnings growth and supports a higher valuation.’
