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(Sharecast News) - Berenberg upgraded Auto Trader to 'buy' from 'hold' on Monday and raised its target price on the stock to 650p from 510p, arguing that concerns surrounding the company's troubled Deal Builder rollout were now largely behind it and that the outlook has improved materially.
The German bank pointed to stronger-than-expected growth in retailer numbers following Auto Trader's first-half results, with dealerships returning to the platform after the company implemented remedial measures and consultation efforts. Berenberg said the recovery was ahead of both its own forecasts and broader market expectations, prompting it to increase its forecasts for dealer numbers.
Berenberg also highlighted improving conditions for motor retailers compared with a year ago, alongside opportunities created by the group's growing use of artificial intelligence. Berenberg believes Auto Trader to be increasingly well positioned to use AI and its extensive data assets to enhance customer and dealer experiences, while potentially creating new revenue streams outside its traditional advertising products.
While acknowledging that concerns around AI disruption continue to weigh on the valuation, the broker argued that such fears were overdone given Auto Trader's investment in technology and ability to monetise new products.
Berenberg also noted solid growth in average revenue per retailer and said the company was seeing encouraging uptake of new services, despite ongoing cost pressures facing dealers.
At around 14x forecast FY27 earnings, the broker said the shares now trade at an unjustified discount to sector peers and offer an attractive entry point.
Reporting by Iain Gilbert at Sharecast.com
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