Analysts at the Swiss bank upgraded the stock to ‘neutral’ from ‘sell’, saying they see long-term opportunities for what is the market-leading car ads site, while staying mindful of a recent drop in the number of trade used cars listed on the site.
In November, Auto Trader revealed pre-tax profits had increased 12% to £127.7 million in the half-year and said that it expected revenue per retailer growth to continue, albeit with a slightly increased headwind from higher stock.
The analysts see two principal drivers of growth from the eight years from 2020, where Auto Trader “can add £330 million of revenue”, which would represent a 9% compound annual growth rate versus 8% in previous forecasts.
“First, we think Auto Trader can use a combination of price rises (3% p.a.) and new product launches to add an incremental £190 million of retailer revenue over the period.”
“Second, we see Auto Trader adding a further £125 million as it transitions to a transaction platform,” of which the largest component is playing “an increasing role in dealer finance and part exchange enabling consumers to make deposits online”.
Fewer than 50% of retailers on Auto Trader currently use its finance option, which allows them to sell cars on monthly payment plans, in exchange for the company getting a larger portion of brokerage fees, at roughly £400 per car.
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