Lookers Plc & FirstGroup Plc: Quick Glance at Strategic Business Updates Unveiled by Two FTSE Listed Stocks

The Office for National Statistics stated that the retail sales plunged by 5.1 per cent in March (compared to February), despite the skyrocketed online sales of toiletry items and food. Considering the present scenario, most of the Companies are adopting several measures to maintain liquidity, while seeking revolving credit facilities and government funds during the lockdown state to remain resilient. Today, we will discuss a small-cap retailer Lookers PLC (LOOK) and mid-cap travel & leisure stock FirstGroup PLC (FGP). Both companies released their trading statements on 24^th April 2020. Subsequently, the stock price of LOOK fell 2.97 per cent, and FGP surged 3.13 per cent (at the closing of 24^th April 2020). Let’s take a review over their respective business models, financials and outlook in the light of their latest updates.

Lookers PLC (LON:LOOK)

Lookers PLC is a FTSE All-share listed, motor retail and aftersales service company. Its principal activities involve sale of used and new cars, vans and providing after sales services. The company differentiates its operations into four segments, namely New cars, Used cars, Aftersales and Leasing & others. It consists of over 165 franchised dealerships representing around 31 brands and sells over 218,000 new and used cars annually from 31 locations. The group's operations are spanned across the United Kingdom and the Republic of Ireland.

(Source: Company Website)

Highlights of Business Model and Strategy

Motor Retail Division

• The motor division generates revenue from the sale of new & used cars and vans.
• The Lookers group has sold between 2.26 million to 2.69 million used and new cars over the past five years. By 2019, their market in the retail sector of cars jumped to 6 per cent from 4 per cent in 2011.
• The new car market has two segments, each of which represents 50 per cent of the market. The retail sector caters to individual customers, while the fleet sector caters to corporate customers.

Aftersales Service

• The Aftersales division refers to servicing, sale and repair of auto parts to customers’ vehicles.
• The company reaches its customers through the website and digital channels.

The lookers’ business strategy revolves around the following three parameters:

• People: Providing a personalized experience to customers by attracting, training and nurturing the right talent.
• Technology: Providing an omnichannel network that allows customers to reach Lookers, whenever and wherever they want.
• Marketing: Enhancing the brand proposition among customers, suppliers, employees and shareholders.

Management Changes in 2020

• 12^th March 2020: The Chief operating officer of the company, Cameron Wade, stepped down from its position with an immediate effect.
• 5^th February 2020: The LOOK group announced two major C level appointments with immediate effect:
  • Mark Raban joined the company as Chief Executive Officer.
  • Cameron Wade joined the company as Chief Operating Officer.

Trading and Operational Update – Reflecting Decrease in New Vehicle Unit Sales, Increase in Aftersales, and Reopened 31 Locations

• On 24^th April 2020, the company has provided the following trading and operational update. For the two-month period ended 29 February 2020, the company’s new vehicle unit sales decreased by 4.8 per cent (at a like-for-like basis) as compared with UK new car market, which reduced by 5.8 per cent.
• On a like-for-like basis, the unit sales of used vehicles tumbled 2.6 per cent in the two-month period ended 29 February 2020, while like-for-like aftersales revenue increased by 0.9 per cent.
• Led by management decision to reduce its holding of aged used and demonstrator inventory, the vehicle sales volume declined the group performance as well as suffered margin pressure.
• In the two-month period ended 29 February 2020, the like-for-like operating costs were slightly lower than the last year's levels. Presently, headcount is 6 per cent below the level at the beginning of the initiative.
• As earlier announced on 23^rd March 2020, the Board has decided to close all its trading locations temporarily. However, as per the new operating measure, Lookers has partly reopened 31 locations which are providing maintenance to key workers' vehicles and essential repairs and opened 10 parts distribution centres.
• In light of COVID-19, all the members of the management have agreed to temporary reductions of up to 30 per cent in the salary.
• On 31^st December 2019, Lookers expects to report the net debt of approximately £62 million, with revolving credit facility of £250 million.

Share Price Performance

Daily Chart as of April 24^th, 2020, after the market close (Source: Thomson Reuters)

On 24th April 2020, LOOK’s shares closed at GBX 21.25. Stock's 52 weeks High is GBX 94.00 and Low is GBX 10.54.

Outlook – Reflecting Challenging Times

As per the current update, the company has reported a downturn for the two-month period ended 29 February 2020. During the current period, the company is continuing to take a decisive and prudent approach to manage cash. Given the continuing uncertainties resulting from the Coronavirus situation, the management continues to believe that it is too early to make any reasonable estimation of the financial impact on the Group during 2020 and beyond. The company was also facing a challenging market condition due to weak customer confidence and retail cost inflation. Led by Covid-19 outbreak, the company has partly reopened 31 locations and 10 parts distribution centres and expect its revenue and profitability to be impacted in FY20.

FirstGroup PLC (LON:FGP)

FirstGroup PLC is a FTSE 250 listed transport service provider in the United Kingdom and North America. The group served around 2.2 billion passengers in 2019, and it operates around 20 per cent of regional bus activities in the UK and Ireland. The operations of the group are differentiated in five operating segments, namely First Student, First Transit, Greyhound, First Bus and First Rail.

(Source: Company Website)

A Glance of Business Segments by Geographic Division

• United Kingdom
  • First Bus: Leading bus operator in the UK which serves 566 million customers annually with a fleet of 5,700 vehicles.
  • First Rail: Rail operator which serves around 345 passengers annually.
• North America
  • First Student: Provides bus services to around 900 school students annually with a fleet of 43,000 yellow buses.
  • First Transit: Provides public transit management and contracting services to 324 passengers annually with a fleet of 12,900 vehicles.
  • Greyhound: Serving as the only operator in the US and Canada for scheduled intercity coaches with a network of 2,400 destinations and catering 16 million passengers annually with 1,500 vehicles.

Significant Updates of 2020

• 11^th March 2020: The FGP group commenced the formal process for the disposal of its North American business as their portfolio rationalization strategy.
• 24^th January 2020: The group announced the appointment of Sally Cabrini, with an immediate effect, as independent Non-Executive Director.

Business and Liquidity Updates – Reflecting £300 million Issuance as Trains & Buses are Left Vacant

• On 24^th March 2020, the company has provided the following business and liquidity update. The group has reported that its liquidity has been further enhanced through 300 million pounds issuance under the United Kingdom government’s CCFF (Covid Corporate Financing Facility) scheme. The company also anticipates the US government to assist its Greyhound service as the COVID-19 pandemic mallets transport providers.
• As part of the CARES Act, the Greyhound network will receive a significant share of the USD 326 million in funding to intercity bus service.
• The company is presently having a committed headroom and free cash of around £800 million.
• The company has also reported that its North American contract businesses were making continued progress in agreeing with revenue recovery.
• Under the trustees of First Bus pension schemes, the company has agreed for a triennial valuation, with lower overall deficit payments for the year to 31 March 2021.
• Considering COVID-19, FGP is adopting the cost-cutting measures programme, which includes a 20 per cent reduction in salary for executive directors and Board members and pay cuts for the group’s senior management also.
• Presently, First Bus operations in the UK is running a service equivalent to 40 per cent of normal capacity, and passenger numbers for First Bus operation are 90 per cent lower than the corresponding period of the last year.

Share Price Performance

Daily Chart as of April 24^th, 2020, after the market close (Source: Thomson Reuters)

On 24th April 2020, FGP’s shares closed at GBX 61.05. Stock's 61.05 weeks High is GBX 138.80 and Low is GBX 25.00.

Short Term Future Scenario

Recently, the company had borrowed the fund through the Bank of England’s (BOE) CCFF, which is designed for the larger business. The long-term fundamentals of FGP stay sound, and the group will continue to take all key actions to ensure that the company emerges from this challenging situation, created by COVID-19, in the healthiest position possible to deliver the strategic plans. Moreover, the group has been adopting measures to maintain cash and reduce its cost base to battle this uncertain period.