Carsales.com Ltd (ASX: CAR)

Expanding hold in South Korea: Carsales.com Ltd, the largest online automotive, motorcycle and marine classifieds business, inked a binding Memorandum of Understanding with South Korea’s SK Holdings Co., Ltd to purchase the remaining 50.1% interest in South Korea’s number one online auto classifieds business, SK Encarsales.com (Encar.com), and this gives CAR a 100% control and ownership of SK Encarsales.com. CAR had purchased the earlier 49.9% stake in April 2014 and the remaining shares are said to be acquired at a consideration of A$244 million prior to adjusting for movements in working capital.

CAR has been particularly eying Encar.com as it is one of the strongest performing overseas businesses that delivered good revenue and earnings growth. While the acquisition is subject to regulatory approval and confirmatory due diligence, CAR expects to fund the investment using new syndicated debt facilities. However, the acquisition will be neutral to adjusted EPS in FY18 and accretive in FY19 and onwards.
 

Domestic Revenue for FY17 (Source: Company Reports)
 
Meanwhile, the group had a challenging year for its Finance and Related Services’ segment owing to lower than expected earnings at the back of volume capacity reductions at a major lender. On the other hand, core domestic segments of Online Advertising and Data, Research and Services saw growth of 12% and 10%, respectively, in terms of revenue. Latin American businesses also contributed to growth while webmotors performance was subdued with weak Brazilian economic conditions. Though group’s overall international businesses might bring some growth prospects, but the 21% run-up in last six months places the stock at high levels and the same looks ‘Overvalued’ at the current price of $13.55
 
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