In today’s daily we have covered stock research on CARSALES (BUY). 













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The S&P 500 was down by 30.48points or 1.60%on Monday to 1875.64 points. Concerns over the health of the global economy continued to cast a dark shadow over financial markets keeping stock markets extremely volatile and helping to drive oil prices to multi year lows. The US Dollar also continued to retreat from a recent four year high in spite of the looming conclusion of the Federal Reserve‘s asset purchase programme this month and likely US interest rate rises next year.

The Chicago Board Options Exchange Volatility Index (VIX) soared 13 percent today to 24, the highest level since June 2012. Across the Atlantic the FTSE Eurofirst 300 ended 0.1% higher while the Xetra Dax in Frankfurt rose 0.3% and the FTSE 100 inn London added 0.4%. In Hong Kong Hang Seng rose 0.2%. China’s exports increased 15.3 percent in September from a year earlier.




VIX Daily Chart (Source – Thomson Reuters)
S&P ASX 200was down by 32.8points or 0.63%on Monday and closed at 5155.5 points. Mining was the only major sector to finish stronger on Monday, up 0.5 per cent, as the spot price for iron ore at the Qingdao port in China rose 1.7 per cent to $US80.24 a tonne. Iron ore miner Fortescue Metals Group was the best-performing stock in the ASX 200, climbing 6.1 per cent to $3.46. BHP Billiton added 0.9 per cent to $32.60, and main rival Rio Tinto jumped 1.9 per cent to $58.36.

Ten Network Holdings was the worst-performing stock in the ASX 200, dumping 7.3 per cent to 19¢, ahead of its annual meeting later this week. The Australian dollar is trading at US87.56¢ at 5.39am AEST, compared with US87.34¢ at Monday’s local close.  National Bureau of Statistics data showed both imports and exports grew more than forecast. Telstra Corporation lost 1 per cent to $5.24, Woolworths dipped 0.2 per cent to $33.68, while Wesfarmers, owner of Coles, shed 2 per cent to $40. Iron ore is up 4.9% at $US84.17 as per the mos recent close.

 

TEN Daily Chart (Source – Thomson Reuters)
 
Top Performers on the ASX 200 were :-




 
 
Stock of the Day – Carsales.com Limited (BUY)

Carsales.com Ltd (CRZ), operating in the online advertising business and data & research services in the automotive industry, has caught our attention today with its lucrative panorama.

CRZ witnessed sales of A$236.08m during the year ended June of 2014, which reflects a 9.7% increase from previous year. The Company has illustrated market leadership throughout 1H14. Operating revenue rose to A$112.3m, up by 10% on pcp with operating expenses up 1% on pcp. CRZ’s EBITDA was up 18% on pcp to A$63.5m and EBITDA margins rose to 57%. Operating cash flow was 18% up on pcp to A$43.3m. Further, EPS was found to be 18.5 cents per share, up 16% on the prior half year’s results. Factors that steered the growth primarily entailed the Feb 2013 lead fee price rise in automotive and organic non-automotive growth across various segments.


Financial Performance (Source – Company Reports)

Interim FY2014 dividend of 14.7 cents per share declared as opposed to 12.7 cents per share for interim FY2013.

The Company reported that the automotive dealer enquiry growth has been steady throughout 1H14, while the dealer and data services have shown good growth with revenue up 12% on pcp. CRZ’s investment in Webmotors SA (Brazil) has been a boon as it resulted in ~23% increase (on pcp) in revenue and contributed to A$2.3m to the NPAT. Dealer revenue growth rates were maintained soundly throughout 1H14. Dealer & Data Services revenues were driven by growth from Datamotive, Redbook and Livemarket.

Company’s Mediamotive segment also witnessed a 9% growth on pcp. However, 1H14 was affected by market conditions associated with the Federal election. In addition, some car companies (OEMs) also decided to remove online inventory, thereby impacting CRZ’s growth to some extent. However, CRZ may remain shielded from the dealer and OEM dispute based on its good vigor. In such case, top-up strategies such as the auto value chain may also be supportive. For example, the tyresales.com.au and the recent acquisition of Stratton Finance may provide ample opportunities to the Company. Thus, even when CRZ suffers a few jolts from the broader advertising market and changes in some OEM advertising strategies, it continues to leverage on its overall good performance.

CRZ reported its private revenue growth being consistent with prior year, i.e., up 7% on pcp. New product offerings by the Company are also boosting growth. For example, CRZ introduced a new “Premium Plus” product under the category of advertising-assist products.



Revenue (Source – Company Reports)

Although the Company experienced a waning new-car lead volume, the used car lead volumes grew progressively.The Non-automotive verticals have been performing well.

CRZ has also introduced lot many new products which aid in identification of great deals on new cars by the consumers. These include, integrated OEM Special Offer and offers with reference to virtual cars wherein cars are available in various colors. Then applications such as Comment Kick-starter which has been designed for use by private sellers’ for automatically generating comments on their cars, and other mobile based applications look enthralling.

As part of CRZ’s international businesses, WebMotors in Brazil and SK ENCARSALES in South Korea have been performing healthily. The change in ownership and present restructuring find these businesses at a nascent stage only though. The Company has a 22.9% stake in iCar Asia with operations in Thailand, Malaysia and Indonesia, which is also another point of attraction for consumers.
 

CRZ Daily Chart (Source - Thomson Reuters)
The Company forestalls a full year FY14 EBITDA to be around $138m, assuming stability in market conditions and its performance. It plans to release a range of new product developments over the next six months. Further, the Company’s strategy to succeed will emphasize on innovation, new car models along with growth in non-automotive segment. Holistically seen by the Company – 2H14 appears to commence in good health. NPAT growth in FY15 may be based on acquired growth from Stratton along with CRZ’s EBITDA and revenue. There is a possibility that Stratton is introduced across Carsales’ range of verticals, and is also seen to replace CRZ’s existing iGnition finance product. CRZ’s video-based new site Pitchi may also drive EBITDA margins.

We do see few headwinds relating to competition from new entrants and changing consumers’ taste for evolving technologies, a material reduction in inventory, and reduction in internet traffic to Company’s websites.

Nonetheless, CRZ’s capabilities to sustain a market leader position and to outpace others through its core business strategies and organic growth, provokes us to believe that CRZ does have an immense potential. We thus recommend a BUY for this stock at the current price of $9.48.
 
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