CAR reported 1H22 EBITDA of $125.3 million and net profit of $74.6 million (+22.1%) as the impact of lockdowns and Omicron was not as bad as anticipated. The company has maintained its guidance for FY22 group EBITDA growth to be ‘solid’ which on consensus forecasts means around 7% growth.
The surprise package of the result was the 38% revenue growth of the Private category. This was driven by a 20% uplift in yield due to the dynamic pricing changes and higher used car values. Consumers remain keen on avoiding public transport and with travel restrictions only gradually easing, used cars are in demand. The associated revenue streams from vehicle inspections and valuations also benefited.
Dealer adjusted revenue growth of 1% appears modest but in the context of the lockdown/Omicron uncertainty, this was a good outcome. CAR has previously said there would be a 2H22 skew to earnings this year, but with the first half holding up so well, it looks like a much more even full year spread.
Better advertising conditions helped Media revenue to grow by 11% supported by an improved strategy.
CAR is generating good growth from its offshore businesses and has various product initiatives to drive the long term growth in its core business. These include Select, Instant Offer and
Dealer Finance which are all adding to the range and depth of the company’s repertoire.
The international businesses in South Korea, USA and Brazil all contributed to group growth as CAR persists with its strategy. In the US, the Trader Interactive was the most recent addition to CAR’s portfolio and the local team has impressed.
CAR is thinking about how it can make the online experience of buying and selling cars a more prominent part of future earnings. This could be a lucrative step if planned and executed well.
Investment view
CAR’s outlook comments were positive but a little non-specific in terms of numbers. A better performance from the Dealer channel is expected as volumes improve, and yields increase in key products.
The share price has eased back in recent months to the point where we are more comfortable with its valuation metrics. Consensus earnings forecasts are implying a compound annual growth rate around 13% which is attractive.
Risks to investment view
Earnings growth may be at risk if the pandemic becomes extended and affects the economy. If consumers spend less on motor vehicles, this will also impact the vehicle advertising industry.
Recommendation
We have retained our Hold recommendation but with a positive view on the outlook for earnings over the next few years.
