The acquisition of WFM Motors, owned by APE major shareholder and Board member, Nick Politis, has neatly filled a geographic gap in APE’s national footprint. The acquisition is fairly priced, strategically positive and continues the company’s portfolio realignment.
APE has acquired WFM Motors in the ACT comprised of 13 dealerships covering several major brands. The deal takes APE from zero to a market-leading 35% share in the ACT with exclusive dealerships of Ford, Subaru, Volvo and Lexus vehicles. WFM also has 4 of 5 Toyota dealerships in the Territory.
APE is acquiring the property and operating businesses of which property accounts for approximately 60% of the value. The $205 million price implies a 4.5-5.0x PBT multiple for the operating businesses which compares favourably against recent peer transactions. The deal is subject to shareholder approval at the company’s June annual meeting given the relationship between APE and Nick Politis (Board member, 27% equity interest in APE).
Investment view
This transaction between Nick Politis and APE could be the first of several. Mr Politis acquired Wright-Ford Motors (WFM) back in 1974, a year when John Goss and Kevin Bartlett won the Bathurst 1000 in a Ford Falcon (XA Falcon GT), Toyota released the 2-litre four cylinder Corona, and the HJ Holden was released. It was also during the first oil crisis of the 1970s.
Since then, Mr Politis has built one of the largest private dealership groups in the country. We estimate the broader WFM-NGP Group owns more than 30 dealerships and generates over $2 billion revenue with equity interests in up to 70 dealerships nationwide.
APE recently sold its Bill Buckle Auto Group business for $92 million, a dealership group based on Sydney’s northern beaches since 1963 and owned by APE for 14 years. APE simply said its geographic footprint in NSW had changed since acquiring AHG in 2019 and it made ‘strategic sense’ to divest the Bill Buckle Group.
APE management continue to exit non-strategic, lower return sites and do deals that secure an optimal footprint for the next decade as the sector shifts to omni-channel and OEMs update their market strategies.
The global supply chain remains problematic with industry feedback suggesting vehicle delivery volumes remain variable from month to month. Any expectation of a broader recovery in supply has been pushed back into CY23. We still think Australian new vehicle sales will exceed 1 million in CY22f and that APE can maintain its ~11% market share.
Risks to investment view
The Australian new and used car market could experience a slowdown of demand if consumer confidence fell. New vehicle demand can be volatile. The dealership market is undergoing a gradual restructuring being imposed by some manufacturers and this presents a challenge to APE and other dealership networks.
Recommendation
We have retained our Buy recommendation.
