Interactive Investor

ii view: Auto Trader half-year profit speeds ahead

It's the one to beat in the car advertising business. We assess prospects for this FTSE 100 company.

15th December 2023 12:42

Keith Bowman from interactive investor

First-half results to 30 September

  • Revenue up 12% to £280.5 million
  • Operating profit up 10% to £164.6 million
  • Interim dividend up 14% to 3.2p per share
  • Net debt down 52% to £27.3 million

Chief executive Nathan Coe said:

“It has been a strong start to the year with more buyers spending more time and completing more of their car buying journey on Auto Trader. We are working in partnership with record numbers of retailers and manufacturers, who are turning to our platform as the most effective and efficient way to source, price and sell their vehicles.

“We remain confident in our long-term prospects given the strength of our business and the opportunities to deliver meaningful value for car buyers, customers, our people and shareholders.” 

ii round-up:

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

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

Employing over 1,200 people, its website attracts more than 65 million visits each month.

For a round-up of these latest results announced on 9 November, please click here.

ii view:

Coming to the stock market in 2015, Auto Trader is the UK’s number one marketplace in terms of website traffic, revenues and vehicle listings. Most of its revenue comes from the advertising of vehicles via its more than 13,700 forecourt trade customers, with the Average Revenue Per Retailer (ARPR) per month currently £2,683. Just under a tenth of revenues are generated by its Autorama leasing business. A similar business model is operated by housing website marketplace operator Rightmove (LSE:RMV).

For investors, heightened borrowing costs to finance the purchase of a vehicle should not be overlooked. Competitors such as CarGurus and Cazoo are not standing still, with the possibility that the business goes global at some point also worthy of consideration. Costs generally for businesses remain elevated, self-driving taxis in the future could potentially reduce the need for car ownership, while potential for forecourt consolidation persists as operators such as Car Giant and Motorpoint Group (LSE:MOTR) look to grow.

On the upside, Auto Trader has a dominant position in the marketing of vehicles. Investment in product innovation continues, with its ‘Deal Builder’ product allowing car buyers to value their part exchange, apply for finance and reserve the car online being trialled by a growing number of dealers. Group net debt is relatively small, while shareholder returns are being made via a progressive dividend policy and forecast yield of around 1.3%, plus continuing share buybacks.   

After rising more than a third in 2023, Auto Trader shares are not far off a record high, and a price/earnings ratio above the three-year average suggests the shares are no longer cheap. However, the company is a leader in its field and continues to innovate. While the economic environment next year remains uncertain, Auto Trader remains a popular share and one which investors might consider for a diversified portfolio.

Positives: 

  • Strong market position
  • Investing in product innovation

Negatives:

  • Uncertain economic outlook
  • Competition not standing still

The average rating of stock market analysts:

Strong hold

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