UK car dealerships shine on stock market

By Sudip Kar-Gupta

LONDON (Reuters) - With many of Britain's classic car brands now foreign-owned, fund managers and brokers are turning to domestic-listed dealerships to cash in on resurgent car sales and wage growth in the UK without investing abroad.

Data this month showed that UK new car registrations rose 6 percent in March, setting a record for the month this century, while wage growth - for long an absent part of Britain's economic recovery - is also picking up.

Furthermore, the sector should prove relatively resilient to any hits caused by uncertainty ahead of Britain's May 7 election, since the positive backdrop of more spending money for consumers and rising car sales should not change regardless of who wins the vote, fund managers and traders said.

They highlighted British car dealership stocks such as Lookers (LOOK.L), Pendragon (PDG.L) and Inchcape (INCH.L) as worthwhile investments given this climate.

And if the sector is good enough for legendary U.S. investor Warren Buffett - who last year bought the Van Tuyl auto dealership - it should be good for others, said CF Miton UK Value Opportunities' fund manager George Godber.

"Stocks like Lookers and Inchcape are a great way to profit from the renaissance in the British car industry," he said.

According to Thomson Reuters StarMine data, Lookers is trading on a price-to-forecast earnings ratio for the next 12 months of 11.4 while Inchcape is on a P/E ratio of 15.7 - cheaper than a comparable P/E ratio of 16.6 for the broader FTSE 350 index (.FTLC).

Lookers' websites offer the chance to buy used vans and budget cars, along with upmarket brands such as Jaguar and Land Rover.

Pendragon's Stratstone brand also holds franchises for cars such as Aston Martin and Ferrari, while Inchcape has deals to sell cars ranging from Kia and Ford up to luxury brands such as Aston Martin and Bentley.

Last month, Inchcape saw its shares rise to a 7-1/2 year high after announcing a dividend ahead of traders' expectations. Lookers also forecast more growth after reporting an increase in its 2014 profits.

Lookers' shares have risen nearly 20 percent since the start of 2015. Pendragon shares have advanced by a similar amount while Inchcape (INCH.L) is up by around 16 percent.

"Pendragon is a good one, and is owned by a few of our clients already," said Gary Paulin, co-founder of brokerage Aviate Global, while Old Mutual UK Smaller Companies fund manager Dan Nickols said he held Lookers in his portfolio.

Colin McLean, managing director at SVM Asset Management, added that while he did not own those stocks for now, those firms are well positioned given that Britons' spending power are set to stay strong with UK interest rates at record lows.

"We believe wage growth will benefit a lot of these stocks."

(Editing by Lionel Laurent/Mark Heinrich)