ii view: AI helps drive performance at Auto Trader

Full-year results to 31 March

• Revenue up 5% to £601.1 million
• Operating profit up 8% to £376.8 million
• Net cash held of £15.3 million, up from net debt of £11.3 million
• Final dividend of 7.1p per share
• Total dividend for the year up 10% to 10.6p per share
• Share buybacks of £187 million for the year

Chief executive Nathan Coe said:“Despite broader macroeconomic uncertainties, the UK car market is in good health and we continue to deliver against our strategy to improve car buying and retailing.

“A key highlight of the year was the launch of our suite of AI-powered products called Co-Driver, which is delivering one of the most significant improvements to our search experience and our retailer tools in years. The first wave of Co-Driver products has already successfully enhanced the quality of adverts, while reducing the amount of time it takes for retailers to advertise their vehicles. We see significant potential for the use of AI to improve the buying and selling of cars in the years ahead.

“We remain confident in the outlook for the business given our strong market position, the value we deliver for customers, and our unique data and technology capabilities.”

ii round-up:

Auto Trader Group (LSE:AUTO) provides an online digital marketplace for both forecourt dealerships and individual consumers. 

It looks to bring together buyers and sellers of vehicles, charging fees to sellers to advertise their product. Both second-hand and new vehicles are bought and sold on the platform. Car leasing deals are also available via its Autorama business and under the Vanarama brand. 

Employing over 1,100 people, its website attracts more than 81 million visits each month.

For a round-up of these latest results announced on 29 May, please click here.

ii view:

Coming to the stock market in 2015, group customers now spend around 557 million minutes per month viewing the group’s website. Most of its revenues come from the advertising of vehicles via the 14,013 forecourt dealerships selling vehicles through the group’s website. Both second-hand and new vehicles are bought and sold on its platform with vehicles to lease also available. Leasing accounted for 6% of revenues over this latest year and generated a small annual loss. 

For investors, constrained vehicle supply conditions are resulting in shorter periods of advertising, hindering revenues. The Financial Conduct Authority’s (FCA) investigation into motor finance practices now overhangs with a major decision on potential customer redress expected soon. Tech titan Amazon.com Inc (NASDAQ:AMZN) is taking an interest in the UK motoring market, while an estimated share price to net asset value above the three-year average may suggest the shares are not obviously cheap. 

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More favourably, initiatives including the use of artificial intelligence (AI) to improve advertising efficiency are now being pushed. Losses for its Autorama leasing business are expected to reduce going forwards. Net debt has been pushed to a net cash position, while shareholder returns include both a dividend payment and a share buyback programme. 

In all, and despite ongoing risks, a dominant market position and continued innovation are likely to keep long-term fans of this FTSE 100 company loyal. 

Positives: 

• Strong market position
• Investing in product innovation

Negatives:

• Uncertain economic outlook
• Leasing business losses

The average rating of stock market analysts:

Strong hold