From Market Matters morning report today:
Eagers Automotive (APE) $10.76
Eagers (APE) is Australia’s largest car dealer and is coming off the back of a tough 12-months, with the shares trading down from ~$16. New car sales have been weak, amplified by too much inventory (after having too little during Covid), particularly within EVs. As is well known by now, EV sales have been weaker than many expected, including Eagers and this has been a headwind for them.
- Last week they reported 1H24 results that showed some promise, and while we have exposure to this theme in the Active Income Portfolio through salary packaging business Smart Group (SIQ), we are adding APE onto our Hitlist.
While there is still more improvement needed, a number of metrics looked good in APE’s update, with orders for new vehicles now running in line with strong deliveries, growth has returned to their online business EasyAuto (EA) and their distribution of BYD vehicles is now back in profit.
Margin pressure remains due to still high inventory, which impacts their borrowing costs (interest expense), and high inventory also increases competition to make sales, which puts pressure on prices, however, Eagers are very good operators, with a huge footprint nationally, and this margin pressure will work through in time.
- APE trades on 11.6x, around 25% below its usual 15.6x, implying these headwinds are largely in the price, while a forecast yield of 6.9% fully franked is appealing for an income focused portfolio. We are just missing am immediate catalyst.
MM is adding APE onto our Hitlist for the Income Portfolio
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Eagers Automotive (APE)
LAST UPDATED 04/09/2024 05:56