Carsales.com Limited

CAR Details

FY19 Top-Line Improved by 11% on pcp: Carsales.com Limited (ASX: CAR) is the largest online automotive, motorcycle and marine classifieds business in Australia, attracting more Australians interested in buying and selling cars, motorcycles, trucks, caravans and boats than any other group of websites. The company operates across the world and has interests in leading automotive classifieds businesses in Brazil, South Korea, Mexico, Chile and Argentina.

Recently, as part of organisational structure change, Ajay Bhatia has been appointed as Managing Director and will be responsible to encompass all of carsales’ Australian operations, including Consumer, Dealer, Media and OEM. Mr. Bhatia has been with the business for over 11 years, with 8 years as the Chief Information and Product Officer, and the last 3 years as the Managing Director of the consumer business.

FY19 Financial Highlights for the period ended June 30, 2019: The company generated revenue amounting to A$417.5 Mn, up 11% on prior year revenue of ~A$377 Mn. Adjusted EBITDA for the period stood at A$210.1 Mn, up 7% on ~A$196 Mn on year-on-year basis. Adjusted net profit after tax was reported at ~A$131 Mn, up 3% in comparison to FY18 value of A$128 Mn. Adjusted earnings per share for the period was reported at 53.9 cents as compared to 52.7 cents in prior corresponding year. A final dividend of 25 cents per share was declared by the Board, representing an increase of 5% on prior corresponding period.


Historical Financial Performance (Source: Company Reports)

What to Expect:The company has entered into FY20 with a solid start in its core Australian Dealer, Private and Data businesses. Moreover, the company is also expecting to report an improved trajectory for the Display segment in FY20, amidst challenging market conditions. Growth in Brazil and South Korea is expected to be in-line with FY19. Profitability in the Group’s Chilean business is expected to witness an improvement as compared to FY19. In addition, the company is also anticipating an investment in the Mexican and Argentinian businesses similar to FY19 levels.


P/E Multiple Approach (Source: Thomson Reuters), NTM: Next Twelve Months
 
Stock Recommendation:CAR’s share generated a positive YTD return of 45.45%. The stock is trading close to its 52-week high of $16.750. Its gross margin, EBITDA margin and net margin for FY19 stood at 91.9%, 49.2% and 31.9%, lower than the FY18 result of 92.1%, 52.0% and 48.7%, respectively. Its debt to equity ratio has increased from 1.39x in FY18 to 1.50x in FY19. Moreover, its EV/Sales and EV/EBITDA multiples on NTM basis stand at 9.0x and 17.0x, higher than the industry median of 3.6x and 10.8x, indicating an overvalued position at the current juncture. Hence, considering the aforesaid facts, stretched valuation and current trading levels, we recommend a "Sell" rating on the stock at the current market price of $16.10 up 2.679% on December 05, 2019.


CAR Daily Technical Chart (Source: Thomson Reuters)

Aventus Group

 

AVN Details

AVN Announced Settlement of APS1:Aventus Group (ASX: AVN) is involved in the investment and management of large format retail property assets. On November 18, 2019, the company announced the settlement of the Aventus Property Syndicate 1 (APS1), where APS1 acquired McGraths Hill Home located in northwest Sydney from AVN at its book value of $42.5 Mn. With equity interest of around 25% in APS1, AVN is expected to provide funds and property management services to APS1.

In another update, Legg Mason Asset Management Limited, ceased to be a substantial holder in the company, effective from October 31, 2019.

FY19 Key Highlights for the period ended June 30, 2019:Funds from Operations (FFO) for the period was reported at $96 Mn or 18.4 cents per security as compared to $89 Mn or 18.1 cents per security in the previous period. Distributions for the period was reported at 16.6 cents per security. Revaluation gains for the period was reported at $85 Mn, bringing the value of the portfolio to $2.1 Bn. The Company reported a profit of $110 Mn. Gearing for the period was reported at 38.7%, within the target range of 30%-40%.


FY19 Key Metrics (Source: Company Reports)

What to Expect:As per the release, settlement of the APS1 along with recent underwritten distribution reinvestment plans, are expected to reduce the gearing on a pro-forma basis by around 3% to 35.7%. With the launch of APS1 and recent capital management initiatives, the company has confirmed FY20 FFO (Funds for Operation) earnings guidance at 3%-4% growth (equivalent to 19.0 – 19.2 cps). AVN is most likely to seek more opportunities to manage third party capital and diversify its income streams, thereby to generate sustainable value for its shareholders.

Valuation Methodology: EV/Sales Multiple Approach

EV/Sales Multiple Approach (Source: Thomson Reuters), *NTM-Next Twelve Months

Note: All forecasted figures and peers have been taken from Thomson Reuters, *NTM-Next Twelve Months

Stock Recommendation:AVN’s share posted a positive YTD return of 26.75% and is currently trading close to its 52-week high level of $2.920. Company’s settlement of APS1 represents the launch of its first dedicated large format retail syndicate since listing, demonstrating its ability to expand the funds management platform for Aventus through leveraging the expertise and experience of its team. Considering the company’s recent settlements, decent portfolio performances, FFO earnings guidance and current trading levels, we have valued the stock using a relative valuation method, i.e., EV/Sales multiple and therefore, recommend a “Sell” rating on the stock at the current market price of $2.900, up 0.346% on December 5, 2019.
 

AVN Daily Technical Chart (Source: Thomson Reuters)

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