Banking on batteries

1H23 RESULT

Need To Know

• 1H23 NPATA beat (7%) vs consensus
• $43m buyback declared 
• Orders outpacing delivery

1H23 NPATA beat, driven by EOL income: FPR (previously known as ECX) reported an NPATA of A$42.6m which was a 7% beat on consensus. This beat was driven by elevated second-hand vehicle pricing and higher than-anticipated End of Lease (EOL) income which offset a soft Net Operating Income (NOI). 

It must be noted that the EOL income is returning to its pre-COVID levels as predicted. In 1H23, the EOL income per vehicle was $7,658, down from the previous year's high of $8,813 in 1H22.  

Vehicle Supply Constraints: The ongoing vehicle supply constraints have caused a 7% decline in NOI. Despite a constraint on supply, the strength in underlying demand of new orders is evident across all segments with NZ’s novated and small fleets exhibiting robust growth, resulting in a record carry-over revenue.

The recent change in EV regulations where the expense of owning a $66k EV is equivalent to owning a $40k ICE vehicle has caused a surge in EV orders placed by both novated and corporate fleets. This change in legislation is expected to positively impact NOI over the medium term. 

$43m buyback announced for 1H23: The better-than-expected EOL income, resultant cash generation and the robust order book have led management to declare a $43m buyback (90% of 1H23 NPATA excl the $5m). The buyback is comprised of 1) $28m (65% of 1H23 NPATA) 2) $10m (special buyback) 3) $5m buyback carried forward from the 2H22 buyback program. The buyback will commence on 10 May 2023.

Strategic Interest: FPR noted that it is in talks with a strategic party that is considering acquiring a significant minority interest. Although details aren’t crystal clear, we see this as a supportive sign for the share price. 

Investment View

The market remains somewhat hesitant around weaker NOI expectations, ongoing supply constraints and continuation of elevated maintenance levels. 

Despite this, FPR is well positioned to benefit from positive long-term drivers such as the change in EV legislation and further expansion of its order book. 

Although given the stock is currently trading on a 17% PER discount to its 5yr average of 9.8x, we see upside at current levels.  

Figure 1: EOL income per vehicle is slowly reverting to its pre-covid levels

Figure 2: PER trades at a discount to its long-term average.