CAR--FY24 Top 10 position --the International Odyssey

 CAR FY24 -top 10 position

Fy24 the result was complicated by the large acquisitions completed over the last two years. Overall NPAT was 3% higher than my expectations but that is couched in the understanding that profits are more difficult to estimate if large acquisitions occur. However, it was a positive result. FY25 guidance was growth across the board in revenue and ebitda with ebitda margins similar to 2024.

It is worth reiterating the size of CAR's acquisitions over the last couple of years. SHF in 2020 was $325m and is now $2.9B and TA was $1B in 2020 now $4.7B, the growth is quite extraordinary. The success of these large investments' will determine CAR's outcome more than anything else. In conclusion, the early results are promising.

The Australian results are of interest as a leading indicator, as continued success in the home market is important, as the strategy in part revolves around taking CAR domestic skills and business model to the world. The Australian business breaks down into four segments, Dealer (51% of total dom rev), private (22%), media (16%) and data/services (11%). All are growing and for the first three, the growth has been double-digit for the last two years. Media is particularly interesting, getting OEM and industry participants to advertise on the site, growth has been accelerating. The group highlight this as an ongoing growth engine. CAR appears to be embedded in the dealer model and has a strong position in private seeing off various competitors.  Of interest is the success of dynamic pricing and Instant offer in Australia, as well as the continual evolution of the yield/ depth model of new products and higher pricing. The returns of the business have picked up markedly due to the success of these initiatives as well as competition falling away. CAR has been given free rein domestically.

However, although encouraging, CAR sits at a dominant 7.3X larger than the nearest competitor in Australia. The story varies from market to market overseas. NA 3X, Korea 6.8X, Brazil 2,2X.

The slide below highlights the various initiatives in each business. The basic strategy is to replicate the successes in Australia in the overseas business, increasing returns. In Australia, it is to continue to add features while driving depth and price. CAR is well placed domestically.

 

Each international business story varies by market. The large and potentially lucrative NA market comes with much more competition. Compared to Korea and Brazil which have undeveloped markets but carry other risks. To date, CAR is making steady progress in all of them, but ultimate success is not assured here. The US is quite competitive with Truck Paper and Sandhill (?) increasing advertising in NA in the last period. CAR will match this spend. In NA CAR is entering the marine market and introducing various features that have been successful in Australia.

The Korean market is quite different and requires customised strategies, the Guarantee product and Home sales have been introduced and are making some progress. Changing the system is always a lengthy task.

In Brazil the partnership with Santander is positive and progress is being made there.

It is important to remember that CAR held equity positions in Brazil and NA before committing to take out minorities. It can be assumed that a higher level of business knowledge did exist.

The CAR balance sheet is sound. The FCF conversion is low for this style of business and perhaps relates to the associates, declaring profits but not transferring cash. The last year saw CF conversion at 100%, post-acquisition of minorities. The strong FCF of CAR allows them to consider acquisitions again when the opportunities exist. High FCF adds enormously to the business's flexibility.

VALUATION/CONCLUSION

Despite what may be described as “so far so good” in the international expansion, given the large size of the investments, we are still too early to call this an outright success IMO. Positive early progress is a great sign and we can be optimistic. The main issue I see is the competitive NA market. Moving to a position of dominance and the high returns that generates, is some way off in NA, maybe never. The other international operations are in undeveloped markets so having less competition but are a long grind. However, one worth taking IMO.

What would change the thesis here? Bad news in the international markets, especially in NA. If profitability deteriorates for any reason the thesis would be under question. Otherwise given reasonable progress to date, I see buy levels around $26-28. That assumes 10-12% eps cagr over the next 5 years and a 25PEx exit multiple giving a 10%pa return-all doable.

CAR plans to expand the media business. The use of Programmatic adtech to make efficient use of ad placement for OEMs and agencies. 

CAR view their markets as 9% penetrated. The below TAM numbers should be taken with a grain of salt, IMO. However, of note is the large media targets, 46% of the total. This indicates how important the media strategy is. Korea is low as Kia and Hyundai don’t feel the need to advertise. Lol.