Demand for new vehicles in Australia resumed its upward march in 2021, but customers have been forced to be patient as deliveries are stymied by global chip shortages. COVID-19 did cost Eagers Automotive during the period but proved nothing more than an annoyance to vehicle buyers.
APE reported FY21 adjusted profit before tax of $401.8 million, just above the guidance given in November last year. COVID-19 costs of $25 million were incurred.
The Board ramped up the final dividend to 42.5cps (fully franked) taking the full year dividend to 70.9cps including an 8.4cps special dividend paid in 1H21.
Supply constraints on new vehicles have continued to create a bigger gap between orders and deliveries. Demand has not diminished but the industry remains hostage to the shortage of vehicles available for delivery. The new vehicle market grew by 14.5% in 2021 to back over 1 million vehicles although sales drooped a little in the final quarter.
New vehicle revenue increased 4.2% during the year but was in decline in 2H21 at -15% as supply chain issues ramped up.
Parts and Service revenue slipped during the year by -10%, but like new car sales, this was worse in 2H21 at -17%.
Easyauto123 is another innovation that is gradually adding value to APE. This is a fixed price online model for customers to choose how they want to transact the trade and finance of a used vehicle.
Investment view
The EV market is already here, but don’t try telling that to the legions of rusted-on 4WD’ers who would sooner drive a pink Hilux than an electric vehicle. Currently, every second new vehicle sold in Australia is an SUV although the definition of what qualifies as a ‘proper’ SUV is more likely to be a ute – Hilux, Ranger, D-Max etc.
But EVs are no longer the domain of soy latte-sipping lawyers and bankers. EVs will soon begin to dominate the school run and perhaps even become the primary household vehicle of choice once the recharging infrastructure becomes ubiquitous and efficient. APE is sensibly getting ahead of the wave by doing deals such as the EVDirect.com JV for Chinese-made BYD brand EVs. APE has secured a 49% interest in an exclusive nationwide dealership arrangement with EVDirect.com to retail the BYD hybrid and electric vehicles.
BYD has ambitions of being a top 5 auto brand in Australia by the end of CY23. In that short time, it will therefore need to sell more vehicles than Kia, ranked 5th in CY21 with market share of 6.5% and sales of 68k units. Good luck! Perhaps the pricing will be extraordinarily good.
Consensus forecasts for FY22f expects PBT to pull back a little from 2021, but gross margin has improved, and the company has taken more operating cost out of the business as management continues to restructure the dealership network.
Risks to investment view
The Australian new and used car market could experience a slow down 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.
