On the back of solid figures from the UK car industry, motor dealer Lookers (LOOK) is the latest example of why the retail sector is not entirely on its knees. Its results are ahead of expectations and its share price, like that of peers including Vertu Motors (VTU:AIM) and Inchcape (INCH), is motoring ahead.

Lookers has revved up 1.8% to 86.25p as its full-year numbers equalled its fourth consecutive year of record results. This triggered a new round of earnings upgrades by the analyst community.

Driven by stronger conditions in the new car market, faster growth in used vehicle sales, steady improvement in after-sales and recovery in Lookers' parts division in the second half, pre-tax profits grew 9% to a £36.8 million. This result was £1 million ahead of consensus. The cash-generative car dealer confidently lifted the full year dividend 8% to 2.35p.

Lookers is benefiting from slowly improving conditions in the UK motor retail market, which grew by 5.3% in 2012, with the company delivering double-digit growth in new and used car volumes and at improved margins, too.

The domestic market is in far better health than the rest of the European Union, where demand has fallen as a result of the sovereign debt crisis with consumers hunkering down amid austerity measures and high unemployment.

Data out to today from the Society of Motor Manufacturers and Traders (SMMT) revealed new car sales rose for the twelfth successive month in the UK in February, bucking the market trend of falling demand across Europe. The SMMT said there were 66,749 new registrations last month, a 7.9% increase over February last year. Lookers is making the most of this uptick, off to a strong start in 2013, continuing to outperform the new retail car market and reporting a healthy order book for the key month of March.

Signs of industry-wide recovery have been reflected in upbeat updates from Lookers' quoted peers too. Last week (1 Mar), Vertu Motors said annual numbers to February would beat forecasts, while Pendragon (PDG) last month (19 Feb) pleased with news of profitable growth for 2012 and a return to the dividend list.

Andy Bruce, Lookers' newly-promoted chief operating officer (COO), says the business is also benefiting from its increasing exposure to the buoyant premium sector. This provides positive read-across to globally-diverse peer Inchcape (INCH) which is set to post full-year figures next week (12 March).

Lookers' dealerships represent marques including Land Rover, Mercedes Benz and Audi, the latter relationship strengthened by last year's (5 Jul) acquisition of Lomond Audi in Scotland. 'Premium is becoming a bigger sector of the market,' insists Bruce, 'and this is where the bigger margins are.' Given Lookers' strong operational cash flow and low gearing of 24%, the company is well placed to swoop for strategic acquisitions in both the motor and parts divisions. 'We've always got a few irons in the fire,' assures Bruce.

Following Lookers' numbers, Panmure Gordon has raised its price target from 90p to 106p and is sticking with its 'buy' recommendation on the stock. 'We are upgrading our 2013E and 2014E forecasts to take account of the higher run rate in the business at present,' writes the broker, 'with scope for further upgrades if markets continue to recover.'

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Issue Date: 06 Mar 2013