Auto Trader part of the grain

At the time, we questioned whether the auto website’s valuation should be predicated on the same basis as online market disrupters such as Rightmove (RMV). What we failed to appreciate, however, was just how firmly embedded the business had become in the UK auto market. So, even though the industry has been beset by collapsing diesel sales, along with detrimental supply-side and regulatory issues, Auto Trader has continued to prosper due to its 'stock-based' business model. It's worth remembering that while both new and used car markets have deteriorated, the size of the overall UK car market continues to build.

The group is also tailoring its operations to take account of changing patterns of consumption and the move away from traditional car ownership. Independent research shows that consumers are not only carrying out more of their car buying research online, but are more inclined to consider the cost of a car as a monthly expense, rather than the full retail price. It’s this latter trend that has opened-up novel financing opportunities for auto dealers. The group monetised its Dealer Finance product in April 2018, achieving 70 per cent penetration among eligible retailers, who either pay to advertise their own finance offers, or display finance deals from Auto Trader’s finance partner on their adverts.

With most of its revenue generated through the used car market, the group took a significant step towards establishing a presence in the new car market during the period, launching a product that allows retailers to upload physically available new cars at current retail prices. Although currently being offered on a free trial basis while technical issues are ironed-out, the product presents another potentially lucrative revenue stream.

Numis expects cash profit of £267.3m for the March 2020 year-end, giving EPS of 22.3p, rising to £286.1m and 24.6p in FY2021.