ii view: Auto Trader has long-term appeal

Covid has disrupted business, but the balance sheet is now stronger and market position is unrivalled.  

Full-year results to 31 March 2020

• Revenue up 4% to £369 million
• Pre-tax profit up 4% to £251.5 million
• Net debt of £80 million at end of May
• Dividend payment suspended

Chief executive Nathan Coe said:

"We are pleased with our achievements in the past financial year, however we recognise these have been well and truly surpassed by the events of the past few months. Through this time, we have been absolutely committed to supporting our people and customers in the face of the most challenging conditions ever experienced by our company or industry.

"Since the early stages of the pandemic we have endeavoured to act decisively and responsibly to ensure we and our customers could emerge in as strong a position as possible when the crisis passes. We've been encouraged by the strong initial bounce back in used car demand, and whilst the short-term outlook remains uncertain, we believe the case for moving more of the car buying process online is stronger than ever. We are looking forward to making this a reality with our customers in the years ahead."

ii round-up:

Online automotive marketplace provider Auto Trader (LSE:AUTO) today scrapped its final dividend payment due to the ongoing uncertainties of the coronavirus pandemic. 

Following free advertising given to support its forecourt customers during the shutdown in April and May, and a 25% discount in June, a return to full fees has been made in July. On current trends, management expects July retailer revenue to be down by mid-single digits year-over-year. 

Auto trader shares fell by more than 2% in early UK trading having fallen by around 12% year-to-date. Shares of property marketplace Rightmove (LSE:RMV) are down by a similar amount in 2020, with it too offering discounted fees and foregoing revenues in order to support its estate agent customers during the lockdown. 

Listing on the London Stock Exchange (LSE:LSE) in early 2015, Auto Trader highlights itself as the UK’s 15th biggest website, with around 50 million cross site visits every month. 

In April and May, the motoring website generated losses as its forecourt customers stayed closed under the lockdown, forcing it to use the government’s Covid-19 staff retention scheme. 

car dealers have, since reopening forecourts at the start of June, have seen a strong rebound in both visitors and enquiries. High levels of demand have left used car pricing strong. Auto Trader website visits are up 28% compared to the first three weeks of June last year. 

Group net debt fell to £80 million as of the end of May, down from £275 million at the end of March and helped by a £186 million institutional fund raising made to strengthen its finances following the Covid-19 outbreak. Its share buy-back programme has also been suspended. 

Full-year results to the end of March, suffering little impact from the virus, were largely in line with city estimates. 

ii view:

Started in 1977 as a small regional classified advertising magazine called Thames Valley Trader, Auto Trader is today a website automotive marketplace which is, according to the company itself, nine times bigger than its nearest competitor. 

During the last full financial year, Average Revenue Per Retailer (ARPR) customer per month rose by 6% to £1,949. Growth from product and pricing offsetting the expected reduction in stock. Forecourt customer numbers rose by 1% to 13,345. Its operating profit margin increased by 1% from the year previous to 70%. Most recently, the company has been looking to add the sale of new cars to its armoury. Over 1,000 retailers paid to advertise new cars on Auto Trader during 2019/2020. 

For investors, the loss of advertising fee revenues during April, May and June will likely see current year profits reduced. The suspension of shareholder returns, although unlikely to be the key attraction, is disappointing. But the group’s strength of brand is unrivalled in its arena. More limited forecourt openings under Covid-19 could even add to its no physical contact website appeal. In all, while some near-term caution looks sensible, the company’s long-term appeal looks likely to remain.  

Positives: 

• Strong brand and market position
• Strengthened balance sheet

Negatives:

• Forecourts could be closed again under Covid-19
• Shareholder returns suspended

The average rating of stock market analysts:

Cautious buy