carsales.com Limited

CAR Details

carsales.com Limited (ASX: CAR) is the largest online automotive, motorcycle and marine classifieds business in Australia. The company has a market capitalisation of ~$6.34 billion on 10^th August 2021.

Result Performance (H1FY21 Ended 31 December 2020)

Strong Operational Performance:  The company reported total operating revenue of $198.9 million, down 9% on the pcp. This excludes $11 million rebates provided in support of its dealers. Thus, adjusted revenue was only down by 2% on the pcp. EBITDA for the period was reported at $113.8 million, up 9% on the pcp whereas adjusted EBITDA was up 18% on the pcp. Adjusted NPAT for the period increased by 17% to $74 million whereas reported NPAT was down 14% to $61 million.

Strong Margin Performance: The company recorded an adjusted EBITDA margin of 60% for the interim period reflecting sound operating leverage and a continued focus on cost management in both the domestic and international businesses. 

Key Data (Source: Company Reports)

Recent Update:

• On 8 July 2021, the company announced that it would  release its FY21 results on 16 August 2021.

Outlook:

Key Initiatives: The company’s ongoing investment in product and customer experience is expected to further strengthen  its leadership position in the largest markets of Australia, South Korea and Brazil. It is now accelerating migration to digital platforms across its global network of sites as evidenced by strong traffic growth. Its two largest international assets in South Korea and Brazil continue to demonstrate impressive growth profiles and both have significant further future upside potential.

Moderate Consolidated Outlook:  The company  forecasts  moderate Adjusted revenue growth and solid Adjusted EBITDA and Adjusted NPAT growth in FY21, assuming a continuation of the current operating environment for the balance of the second half of the year.

Forecasts provided reflect on higher operating costs for the second half of FY21 on account of increased investment in domestic and international growth initiatives and the absence of wage subsidies.

Key Risks:

The company is susceptible to certain risks such as risks associated  with cyber security; information technology; international expansion; financial regulation and credit availability; stiff competition; etc.

Valuation Methodology: Price/EPS Based Relative Valuation (Illustrative)

Technical Overview:

Chart:

Source: REFINITIV

Note: The purple color line in the chart depicts RSI (14-period), while the yellow color line represents the trend line. The green and red color lines show 21-Period SMA and 50-Period SMA respectively.

CAR's prices witnessed a sharp bullish movement in the past two months and now trading around the lifetime high of AU$22.62, indicating the possibility of a downside correction. On the daily chart, the leading indicator RSI (14-period) is trading near an overbought zone at ~69.59 levels and further supporting a downside correction. However, the trend-following indicators 21-period SMA and 50-period SMA are sustaining below the CMP and supporting the stock at the lower levels. Now an immediate resistance level for the stock appears at AU$23.50 while support is at AU$20.40 level.

Stock Recommendation:

The company recorded a decline in its ROE  from 22.4% in H1FY20 to 20.2% in H1FY21. Its  current  ratio too declined from 2.15x in H1FY20 to 2.08x in H1FY21.

We have valued the stock using Price/EPS multiple-based illustrative relative valuation and have arrived at a target price that reflects a fall of low double-digit (in % terms). We have applied a slight discount to Price/EPS Multiple (NTM) (Peer Average) considering fall in the total revenue from continuing operations as well as risks associated with the business.

Thus, we give a “Sell” recommendation on the stock at the current market price of $22.720 per share, up by 1.022% on August 10, 2021.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

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