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JP Morgan downgrades car dealer Lookers on weaker used vehicle profitability

There was a price target hike for rival Pendragon, but its shares are also lower after JP Morgan warned that new accounting standards would dent this year’s profits
car dealership
Both companies had results out last week

Shares in Lookers PLC (LON:LOOK) edged lower on Thursday after JP Morgan slashed its price target and downgraded its recommendation for the UK car dealer.

Analysts at the heavyweight investment bank cut their earnings estimates for Lookers over the next three years, “mainly on weaker used vehicle profitability”.

READ: Lookers reverses as 2018 profits drop

They now expect underlying earnings (EBIT) of £81mln, £87mln and £94mln in 2019, 2020, and 2021, respectively. That’s down from their previous forecasts of £85mln, £94mln and £103mln.

Given the changes, JP Morgan has cut its price target for Lookers to 98p (from 129p) and downgraded the stock to ‘neutral’ from ‘overweight’.

Pendragon target hiked

There was some better news for one of Lookers’ peers, Pendragon PLC, which had its price target lifted to 26p (from 21p).

The analysts said the higher target reflects their “more positive view” on Pendragon’s used car sales strategy.

“We look at Pendragon’s used vehicle strategy, focusing on the potential at its Car Store locations read the note.

“We conclude that a c.£35m swing from £12mln of losses to c.£23mln of profit over the medium term is plausible.”

But accountancy regs to dent full-year profits

The new IFRS-16 accounting standard will reduce pre-tax profits by £0.5mln, they added, although the abacus rattlers kept their ‘neutral’ rating place.

“We may revisit our investment thesis over time, particularly if the new CEO & CFO (arriving early April) support the existing strategy,” they concluded.

Lookers shares fell 1.3% to 95.8p, while Pendragon dropped by a similar percentage to 26.6p.

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Newswire
September 03 2015

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