carsales.com Limited

Company Overview: carsales.com Limited (ASX: CAR) is an online automotive, motorcycle and marine classifieds business in Australia. Its carsales network is an online shop for buying and selling cars, motorbikes, trucks, boats, and machinery equipment. The company was listed on ASX on 10 September 2009.

CAR Details

CAR Rides on Resilient & Diverse Business: The company delivered robust financial performance across its Australian and International portfolio. The below picture depicts the company’s key priorities in 1HFY22 and beyond. The below image shows a CAR’s strategic growth plan.

Strategic Highlight; Analysis by Kalkine Group

Key Findings from 1HFY22 Results:

• The company’s robust revenue result and solid earnings excluded the effect of government wage subsidies which were accepted in 1HFY21. Results reveal a flexible and diverse business model across multiple industries, geographies, and customer segments.

• The company witnessed a robust international performance, with the US, Korea, and Brazil delivering double-digit revenue growth.
• The year over year growth in the dividend is in-line with the company’s objective of widening market participants and opportunities to acquire further ordinary shares in CAR.

Financial Highlight; Analysis by Kalkine Group

Managerial Changes: Recently, the company announced leadership structure changes, depicting the continued opportunities for growth in international and Australian businesses.

• Ajay Bhatia has stepped down from his current role as Managing Director and took the CEO role within the European digital marketplace business in CAR.
• Further, Paul Barlow will be moving into the role of Managing Director of carsales Australia, whereas Will Elliott, carsales’ CFO, will take on the responsibility for carsales’ Investments.

Growing International Revenues: Below image divulges firm commitment in increasing revenue from international markets.

Geographical Highlight; Analysis by Kalkine Group

Key Metrics: For 1HFY22, the company reported a gross margin of 90%, higher than the industry median figure of 53.1%. In 1HFY22, the company recorded an ROE of 7.9%, higher than the industry median figure of 0.9%.

Profitability Profile; Analysis by Kalkine Group  

Top 10 Shareholders: The top 10 shareholders together form around 27.23% of the total shareholdings, while the top 4 constitute the maximum holding. Aware Super held the maximum number of shares with a percentage holding of 6.18%, followed by Bennelong Australian Equity Partners Pty. Ltd. holding of 5.38%, as also highlighted in the chart below: 

Top 10 Shareholders; Analysis by Kalkine Group 

Risk Analysis: The company faces the risk of technological changes, geopolitical changes, COVID-19 uncertainties, and integration synergies from the recent acquisitions. Also, the company’s financial performance might get impacted by caution in buying behaviour. The company is also exposed to foreign currency fluctuation risks, leveraged balance sheet and stiff competition from peers, who develop similar product lines and services.

Outlook: The company expects to deliver solid growth in adjusted revenue, adjusted EBITDA and adjusted NPAT in FY22, excluding recent acquisitions. Underlying domestic market conditions have recovered significantly since the lockdown period in the 1HFY22. Hence, it expects improvements in 2HFY22, supported by improved volumes, higher yield, and growth in key products. With elevated consumer engagement and robust product adoption, CAR will bolster its competitive position in all key markets. Further, Korea, Brazil, and the US all expect robust growth in revenue in FY22, supported by the inclusion of Trader Interactive since September 2021.

Future View; Analysis by Kalkine Group  

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative) 

Source: Analysis by Kalkine Group 

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: The stock of the company has been corrected by ~23.87% in the past six months. Currently, the stock is trading below the average of its 52-week high and low levels of $26.67 and $17.11, respectively. The stock has been valued using the P/E multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at some discount compared to its peers, considering a rise in net debt, integration risk, low entry barrier business model, shifts in consumer preferences, etc. For the purpose of valuation, peers such as Seek Ltd (ASX: SEK), REA Group Ltd (ASX: REA), Seven West Media Ltd (ASX: SWM), and others have been considered. Considering the higher revenue base, robust customer base, product launches, positive outlook, increase in customer base, current trading levels, and upside in valuation, we recommend a ‘Buy’ rating on the stock at the closing market price of $19.38, up by ~2.053% as on 20 May 2022.

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical issues prevailing geopolitical tensions. Therefore, it is prudent to follow a cautious approach while investing.

CAR Daily Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above. 

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Disclaimer

Kalkine New Zealand Limited is authorised to provide general advice only. The information on this website does not take into account any of your investment objectives, financial situation or needs. Before you make a decision about whether to acquire a financial product, you should obtain the Product Disclosure Statement from the product issuer. You should consider the appropriateness of advice taking into account your own objectives, financial situation and needs and seek independent financial advice before making any financial decisions.