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Share Centre stock of the week: Lookers

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Ian Forrest, investment research analyst at The Share Centre, explains why Lookers is stock of the week.

Lookers started life as a bicycle shop opened by the eponymous John Looker in 1908. Since then, it has grown into a group which operates a number of car-related businesses, principally new and used car dealerships and an independent parts division. Its 127 dealerships across the UK offer 31 different marques ranging from value brands to prestige. The company also engages in a number of other areas such as leasing, vehicle rental and tyre distribution.

This is a company with a strong balance sheet and good cash flow which enables it to pursue its strategy of boosting growth through acquisitions. In September Lookers acquired north of England based Benfield Motor Group for £87.5m. This added 30 dealerships and was well received by the market. A trading update covering the third quarter confirmed that trading remained good and the company believes full year results to be in line with market expectations.

Broader trends in the UK are making car ownership more attractive thanks to the falling oil price, while public transport capacity may not match long term population growth. It was announced recently that car registrations in the UK reached record levels in 2015. Consequently, we recommend Lookers as a medium risk ‘Buy’ due to its current strong growth, the diverse income streams, potential for further progress both organically and through acquisitions, and the progressive dividend. While it is always difficult to predict trends in consumer sentiment and behaviour, the shares look good value at this level.

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