Auto Trader Group plc (AUTO) Ordinary Shares 1p
HL comment (10 June 2021)
Full year revenue fell 29% to £262.8m, largely reflecting advertising fee breaks and reductions offered to customers during the pandemic. That fed into a 38% fall in operating profit, to £161.2m. Both revenue and operating profits were better than the market expected.
For the new year, Auto Trader said Covid is currently having little impact on business performance. Assuming no further retailer restrictions, the group expects high-single-digit growth in average revenue per retailer, and flat operating margins, when compared to the pre-pandemic financial year.
Dividends have been restarted, with a 5.0p final dividend declared, and the share buyback is set to resume ''shortly''.
The shares rose 5.3% following the announcement.
Auto Trader is the UK's largest online car sales platform. That's a key competitive advantage. As the most popular platform for buyers, Auto Trader is indispensable for car dealers, allowing it to squeeze more money from its customers through price rises and product developments.
The cost of running the website, already low as a percentage of sales, doesn't grow all that much with each extra user. So as sales grow, margins follow suit and the group generates truckloads of cash.
Of course, the last year was still a challenge.
Forecourts were forced to close because of the pandemic, and Auto Trader responded to the tough conditions by offering its customers ad fee breaks and reductions. The right thing to do for long-term customer loyalty, but a sharp pain in the side for revenue and profits.
Life for car dealerships was already relatively tough before the crisis. The UK car market was grappling with Brexit uncertainty, regulation and technological changes. Coronavirus has just added to the pressure and dealership numbers are likely to dip, which is also a headwind for revenues.
Crucially though, while we'd been concerned the pandemic would result in consumers holding off buying new cars, this doesn't appear to be happening. Demand for latest models is strong - as though lockdowns have made people appreciate cars more than ever. We're also probably seeing the effects of pent up demand.
The group's ability to cross-sell more lucrative ad packages is also intact, which bodes well. The key metric of Average Revenue Per User is expected to gain some traction this year too.
The other positive is the group's efforts to double-down on digital services, boosted by its choice of service and software acquisitions last year. The pandemic has accelerated the shift to online, and Auto Trader has an opportunity to grab an even bigger piece of the pie here. This is helped by the group's very healthy balance sheet, which gives it fire power to do what it needs to. Last April the group issued new shares which raised £183m in cash.
Auto Trader's dominant market position, comfortable liquidity position and very flexible cost base means it has the tools to ride out the (hopefully) last few miles of the crisis. We can't rule out ups and downs though - we don't know the full extent of medium-term forecourt closures yet. A price to earnings ratio a little way above the average means there's confidence from the market, but also pressure for Auto Trader to stay on track.
Auto Trader key facts
- Price/earnings ratio: 25.5
- Average Price/earnings ratio since listing (2015): 24.2
- Prospective dividend yield (next 12 months): 1.4%
All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.
Full Year Results
Trade, which includes retailers selling new and used cars, recorded a 31% fall in revenue, to £225.2m. This was because of Auto Trader's decision to provide free advertising to retailer customers in April, May, December and February, and at a discounted rate in June. Average Revenue Per Retailer declined 32.1% to £1,324 per month. The average number of retailer forecourts was broadly flat at 13,336 (2020: 13,345).
Within Consumer Services, revenue fell 6% to £26.6m, reflecting a decline in individual sellers paying to advertise vehicles on Auto Trader, which offset an increase in insurance and finance services. Auto Trader's Manufacturer and Agency business revenue fell 33% to £11.0m. This was partly because of the decision to remove some advertising slots to improve the site.
The total number of cars advertised on Auto Trader increased by 1% to 485,000. The group said it's seeing strong demand for new cars, while used car stock declined.
Because of the pandemic the group's seen increased demand for online services, with cross-platform visits rising 15% to 58.3m a month.
Despite an 8% reduction in costs to £104.0m - largely thanks to reduced marketing and other costs - the lower revenue meant operating margins dipped to 61% from 70%.
In the year, the group bought KeeResources for a net amount of £25.3m. The company is expected to help Auto Trader strengthen its digital capabilities. AutoConvert was also bought for £18.2m, which is a finance, insurance, and compliance software platform.
Lower profits meant free cash flow fell to £123.4m, from £194.4m last year.
In April 2020, Auto Trader issued around 46m new shares, raising net proceeds of £182.9m. The group moved from a net debt position of £282.4m at the end of March last year, to having net cash of £10.3m.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.
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