A.P. Eagers Limited

APE Details

Trading at 52-Week High: A.P. Eagers Limited (ASX: APE) is engaged in the business of selling new and used motor vehicles, distribution and sale of parts, accessories and car care products, repair and servicing of vehicles, provision of extended warranties, facilitation of finance and leasing in respect of motor vehicles, and the ownership of property and investments.

Market Guidance: The management recently released a market update and lowered the guidance for FY19. On the face of prevailed challenges in the national automotive retail sector, the overall new vehicle sales market was indicated to decline to 8.1% by the end of April 2019The management expects operating profit before tax in the first half of FY19 to be in the range of 7% to 10% which is lower than the corresponding period last year, however, the balance sheet remains strong.

Improved Offer: A.P. Eagers and Automotive Holdings Group Limited (ASX: AHG) as on 07 May 2019, announced  that AP Eagers has agreed to vary its all-scrip offer to acquire the ordinary shares in AHG by increasing the consideration offered from 1 APE Share for every 3.8 AHG Shares (Initial Offer) to 1 APE Share for every 3.6 AHG Shares (Improved Offer).

FY2018 Performance Review:Total revenue in FY18 witnessed a growth of just 1.3% to $4.1 billion in 2018. EBITDA declined by 1.8% to $173.5 million as compared to $176.7 million in FY17. Profit margins decreased marginally as indicated by the EBITDA/Revenue ratio of 4.2% as compared to 4.4% in FY17.

NPBT to Sales ratio of 3.3% was unchanged on the pcp. On an underlying basis, NPBT to Sales for FY18 came in at 3.1%, up from 3.0% in FY17.EBITDA/Borrowing costs came in at 6.5 times as at 31 December 2018 as compared to 6.9 times as at June 2018 and 7.2 times as at 31 December 2017. Borrowing costs at $26.5 million in FY18 were higher as compared to $24.6 million in FY17 due to higher interest rates and higher average bailment and term debt held. PBT (Profit before tax) in FY18 included dividends from AHG of $13.9 million, as compared to $14.5 million.


FY18 Financial Summary (Source: Company Reports)

External Outlook: According to the Federal Chamber of Automotive Industry statistics, new motor vehicle sales in Australia declined by 3.0% in 2018 to 1,153,111 units as compared to a 0.9% increase in 2017.  Tasmania was the only region witnessing new vehicle sales growth where the market was up 3.3% on the prior corresponding period. New vehicle sales performance was the weakest in New South Wales, recording a de-growth of 6.6% on pcp basis. Queensland and Victoria, the two other large markets, witnessed a decline in sales growth (pcp) of -0.7% and -1.8%, respectively. The rest markets also reported a downtick, with South Australia declining 1.9%, Western Australia down 0.6%, Northern Territory down 4.7% and Australian Capital Territory down 1.9%.

Stock Recommendation: At the current market price of $9.360 per share, the stock is trading at price to earnings multiple of 17.880x. The stock made a 52-week high of $9.380 on 23 May 2019. Looking at the price performance, the stock has gained respectable returns of 54.74% on a YTD basis and 7.39% in the last one-month.

Considering the price to book multiple of 2.7x against 1.7x of its industry median, and EV/EBITDA multiple of 15.8x compared to 7.3x of industry median, the stock seems to be trading at the higher valuation.
Considering the sharp run-up in the stock on YTD basis, valuations and AHG related merger move, we advise investors to keep a watch on the stock. Hence, we recommend a “Hold” rating on the stock at the current market price of $9.360 per share (up 0.645% on 23 May 2019).


APE Daily Chart (Source: Thomson Reuters) 

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