FTSE comes back to life and Lookers halves profit guidance

“It might be a day late for zombies but after suffering its worst day in the best part of a month on Thursday the FTSE 100 came back to life on Friday, boosted by better than feared Chinese manufacturing figures overnight,” says AJ Bell Investment Director Russ Mould.

“Investors will be hoping this is a sign of things to come in November after the flagship UK index bucked the trend among its global counterparts by trading in negative territory for October.

“The FTSE wasn’t helped by sterling’s best performance since the financial crisis as raised hopes of clarity on Brexit helped pick the battered currency off the floor.

“A strong pound hits the relative value of the overseas earnings which represent the lion’s share those generated by FTSE constituents."

Lookers

“The car industry seems to be going from bad to worse judging by the latest profit warning from retailer Lookers. A severe downgrade to earnings expectations and the departure of its chief executive and chief operating officer follow previous earnings warnings and a probe by the financial regulator into past selling practices.

“So much bad news is piling up at Lookers that it isn’t really a surprise to see the board want new leadership.

“Chief executive Andy Bruce and COO Nigel McMinn have being trying to keep the business on the road during one of its most difficult periods in history with weakness across the UK car sector. But it is perhaps time for a different skillset considering the sector’s turmoil is unlikely to improve in the near future and the regulator’s probe has only just got going.

“In times of strife you need someone who is prepared to make very bold decisions to stop the business going into a ditch. But finding someone brave enough to take the top job at Lookers won’t be easy given the headwinds facing the sector. Chairman Phil White is stepping up to an executive role until a permanent CEO is appointed and non-executive director Richard Walker is also going to take a part-time executive position as a temporary measure.

“Lookers is now guiding for £20 million underlying pre-tax profit for the current financial year. Analysts had previously forecast just over £38 million, illustrating the scale of today’s profit warning.

“If you go back to 2016 you’ll see that the business made £77 million in pre-tax profit which goes to show how Lookers has subsequently fallen on hard times. However, that year is the start of the period being investigated by the Financial Conduct Authority amid concerns about the way financing plans were sold to motorists.

“There are growing concerns that the car industry could be ‘the next PPI scandal’ if the regulator forces retailers to compensate some car buyers by proving that personal contract purchase (PCP) car financing deals were improperly sold, such as inadequate disclosure around interest rates versus hire purchase agreements.

“If this blows up into a huge mis-selling situation then the whole car industry potentially faces a very large bill at a time when their normal day-to-day business is drying up.”

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