ii view: Auto Trader in pole position

Covid has hurt but the dividend has been restarted and net cash held. Buy, sell or hold?

Full-year results to 31 March 2021

• Revenue down 29% to £263 million
• Pre-tax profit down 37% to £157.4 million
• Net cash of £15.7 million at end of March compared to net debt same time last year
• Final dividend of 5p per share from no final dividend last year

Chief executive Nathan Coe said:

"We decided early on to proactively support our people, car buyers and our customers, many of whom run small family-owned businesses. These actions have positioned us for a strong start to this next financial year.

"There has been a dramatic shift towards buying online which means we now have more buyers than ever turning to Auto Trader to help with their next car purchase, making us even more relevant to retailers and manufacturers. This positions us ideally to enable the buying and selling of cars online, which will materially improve the car buying experience and the business of our customers.”

ii round-up:

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

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. 

Its website attracts over 55 million visits each month, with more than 80% of visits coming through mobile devices. 

For a round-up of these latest results, please click here.

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, according to the company, consumers spend nine times more time on browsing than its nearest competitor. 

Like many businesses, the pandemic has raised mixed issues for Auto Trader. Favourably, average monthly visits to its website increased by around 15%, aided by the lockdown disruption caused to physical dealerships. Less favourably, although arguably taking a longer-term view, Auto Trader supported physical 'on the ground' customers with fee discounts, lowering its own revenues and profit. The pandemic also disrupted the part-exchange of vehicles, a factor Auto Trader has looked to counter with the October launch and trialling of its own guaranteed part-exchange product. This product enables consumers to get an accurate price for their existing vehicle while shopping on Auto Trader.

For investors, management comments referencing a still clouded Covid outlook cannot be overlooked. A forecast price/earnings (PE) ratio comfortably above the three-year average also suggests the shares are not obviously cheap, while rivals such as Cinch and Cazoo are not standing still. That said, Auto Trader’s strongly established position makes it hard to ignore. A return to shareholder returns both in the form of a dividend payment and expected share buybacks also appear to indicate confidence in the outlook. In all, and while some caution looks sensible, Auto Trader will likely remain a core long-term force in the ongoing transition to buying and selling vehicles online. 

Positives: 

• Strengthened balance sheet
• Restarted dividend payment

Negatives:

• Still clouded Covid outlook
• Competition not standing still

The average rating of stock market analysts:

Buy