Newspaper article The Evening Standard (London, England)

Numis Revved Up over Car Dealers'prospects

Newspaper article The Evening Standard (London, England)

Numis Revved Up over Car Dealers'prospects

Article excerpt


NEW-car sales grew for the first time this year in May, according to figures from the Society of Motor Manufacturers and Traders earlier this week.

The number of new car registrations rose 1.1% year-on-year and exceeded industry expectations by around 3%, although the market as a whole remains 4.3% down on the year to date.

Much of the acceleration in growth came from a near-19% increase in business volumes, with fleet sales up 2.3%. Private sales were down 2%, albeit a much reduced decline on the 4.2% fall to date this year.

The SMMT says the figures reflect a small improvement in consumer confidence, but is quick to point out that the forecast total of 2.35 million new registrations for 2006 will be down 3.7% on the previous year.

Broker Numis Securities says it is clear from the figures published by the SMMT that trading in the new-car market is still tough. But it remains positive about prospects for the sector and is looking for above-average earnings growth. The sector average is around 18%, underpinned by strong cashflow and asset backing.

Despite consolidation among motor traders in recent years, Numis says there are still enough attractions around to make it worthwhile for investors.

It has raised Inchcape from hold to add with a target price of 495p, and says there is still scope for investors to enter into a profitable growth story on an undemanding rating of 13 times earnings. The target price is based on 15 times earnings, which has not factored in the impending share buyback.

Numis' pick of the sector is Lookers, which it describes as a resilient performer in tough market conditions. "Investors appear to realise that its recent defence case from Pendragon remains a compelling one," says analyst Mike Allen at Numis.

Numis has lowered its rating on Lookers from buy to add for the time being, but insists the valuation remains undemanding. …

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