CAR FH25--top 10 holding--Great Business--High Valuation

 CAR FH25 Top 10 holding –Soft result—Strong positioning—Valuation high

Result Summary

A bit soft but revenue was impacted by FX -3% and the sale of the Tyre business was circa $60mpa revenues. CC revenues of 12% were better. EBITDA up similarly and margins were flat. Margins improved in Australia (Tyre exit), and marginally in the US and LATAM, while Korea was lower as marketing and investment picked up against competition. Loss on sale of tyre biz $16m.

Overall there were some tactical issues while strategically the game plan remained in place. The tactical issues, the weaker US RV market led to CAR delaying a price hike, and Korean competition. Strategically the game is to make digital transacting easier and gain share while investing in IP and tech to enable this progress. CAR remains well ahead of the competition in the local markets, with Australia 7X the nearest competitor, US 3X, Brazil 3X and SK 7X. CAR noted that the underlying improvement in dynamic pricing and depth as well as media will mean catch-up pricing down the track in the US. The take rate will improve. Korea will see a 2H price increase.

Some interesting tactical progress was made in digitizing Brazil, including a new “Wallet” loyalty product, Korean Guarantee progress, and also C2C payments (interesting monetization at some point) starting to build. CAR continues to invest in trader interactive (US), with new products, GTM, technology and media (ads on CAR site). Brazil is showing + signs of the Santander alliance and investment paying off, CAR commented that they do not see significant investment by competitors.

In Australia CAR saw a swing to used cars at dealers, and away from private and new cars, with EV interest falling away. All signs of a consumer trading down.

CAR continues with a plan of LT double-digit earnings growth and maintains that growth is likely to continue over time. CAR continues to push prices when available and play tactics when the competition spikes up, depending on its superior spending, technology and innovation to pressure the competition.

Valuation

CAR group remains well above buy levels and closer to a sell. Despite the strong franchise, CAR is limited by the absolute take rate of the marketing spend on a car versus eg real estate.

At current prices, I see positive returns but not great. Buy levels on conservative assumptions of 10% eps growth for 5 years and an exit multiple of 25X would be around $27, well below current pricing.

Therefore CAR is a hold and potentially funding if another opportunity comes along, of course, I don’t want to trade down in quality, especially in a strong market environment.

 

APPENDIX

Consistent growth, LATAM firing up.


Overall margins holding in a tough environment.

 

The CAR opportunity set.








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