The world of auto trading, like that of the wider automotive market, is going through a period of change. Dealers are adapting to new models of ownership and changes to the way in which motorists view what is generally seen as the second-largest financial commitment in the average person's life. We believe that BCA Marketplace (BCA), Europe's largest used-vehicle auctioneer and owner of webuyanycar.com, is in a prime position to exploit the changing landscape of the second-hand vehicle market.
- Changing used-car buying patterns
- Leading market position
- Strong cash generation
- Impressive compound annualised growth rate
- Affected by credit cycle
- Lower margins at webuyanycar.com
As a public entity, BCA has only been trading for just over a year following a reverse takeover and the acquisition of the BCA Group of companies. On the face of it, operations are fairly straightforward; BCA matches buyers and sellers of used vehicles through traditional auction sites, such as Blackbushe in Surrey, in addition to new digital channels. However, it's a 'full service' offering, including provision in such areas as appraisal and inspection, vehicle logistics, dealer retail, inventory and de-fleet, remarketing and finance.
The last areas mentioned - de-fleet, remarketing and finance - are complementary and tap into what analysts at JPMorgan Cazenove describe as the "structural evolution of the automotive industry". The main point is this: punters are rapidly moving away from the traditional ownership model in favour of flexible leasing arrangements, or personal contracts (PCPs) that enable someone to acquire a new car for around the same price as a three-year-old one, because they're financing only around half of its total price. According to the Finance and Leasing Association, 76 per cent of new cars were funded using PCPs in 2015.
Meanwhile, combined car and van leasing volumes grew by 27 per cent over the course of 2015, according to the BVRLA, the trade body for the vehicle rental and leasing sector. This is expected to result in a substantial expansion in used-vehicle volumes over the next few years, together with a reduction in average vehicle age, as many more drivers simply choose to upgrade to a new model every three years or so.
Recent statistics bear this out; during the second half of 2015, used-car sales increased at their fastest rate for almost 10 years, according to data from Experian. The number of transactions increased by 7.3 per cent compared with the same period in 2014, the greatest rise since Experian's records began in 2005. Admittedly, the used-vehicle market, like nearly every other segment of the economy, tends to wax and wane in line with the credit cycle, but it's fair to say that the structural changes under way are wholly favourable.
And BCA's growth story had been impressive even before the changes driving the used-car market. According to a separate analysis from broker Numis, the core remarketing division, which accounts for around 80 per cent of operating profits, increased revenues at a compound annualised growth rate (CAGR) of 7.5 per cent from 2000 to 2014, while adjusted cash profits CAGR bounded along at 13.6 per cent. It's worth noting that the remarketing business operates with negative working capital because funds are remitted to vendors after receipt from purchasers and it generates more than four-fifths of its profits in the UK.
| BCA MARKETPLACE (BCA) | ||||
|---|---|---|---|---|
| ORD PRICE: | 177p | MARKET VALUE: | £1.38bn | |
| TOUCH: | 177p-177.25p | 12-MONTH HIGH: | 187p | LOW: 152p |
| FORWARD DIVIDEND YIELD: | 3.6% | FORWARD PE RATIO: | 22 | |
| NET ASSET VALUE: | 143p | NET DEBT: | 17% | |
| Year to 31 Dec | Turnover (£m) | Pre-tax profit (£m)* | Earnings per share (p)* | Dividend per share (p) |
|---|---|---|---|---|
| 2012 | 263 | -9.3 | -29.6 | na |
| 2013 | 442 | -24.2 | -108 | na |
| 2014 | 886 | 7.0 | 2.7 | na |
| Year to 31 Mar | Turnover (£bn) | Pre-tax profit (£m) | EPS (p) | DPS (p) |
| 2016* | 1.07 | 66.7 | 6.6 | 6.0 |
| 2017* | 1.21 | 82.2 | 8.0 | 6.3 |
| % change | +14 | +23 | +21 | +5 |
Normal market size: 1,500 Matched bargain trading Beta: 0.16 *Cenkos Securities' forecasts, adjusted PTP and EPS figures **Includes intangible assets of £1.42bn, or 182p a share | ||||
BCA also enjoys some substantive scale benefits. The group is well over double the size of its nearest competitor, Manheim, and accounts for more than half of all used-car auctions in the UK and Germany and boasts leading positions in many of the 10 other countries in which it operates. And the extent of its physical footprint - 52 auction sites and 200 branches of We Buy Any Car Limited (WBAC) - constitute an effective barrier to entry.
An investment in BCA also provides exposure to webuyanycar.com, the UK's largest business-to-consumer (B2C) vehicle buying business. And although WBAC generates lower margins and is a more capital-intensive model than the remarketing business, it is generating significant additional volumes, thus enhancing liquidity.
