Carsales.com (CAR.AX) has delivered 1H18 results broadly in-line with Deutsche Bank’s forecasts, with EBITDA of $90.6m (vs DBe $90.3m) and Underlying NPAT of $59.2m (vs DBe $60.5m). Notably, the contribution from SK Encar was lower than expected ($3.0m vs DBe $5.6m), leading to a miss at the Associates line, but this was partially offset by lower D&A and Minority outflows. With guidance for “moderate” earnings growth at Encar in 2H18, the changes to our forecasts reflect lower FY18 growth in Korea. PT increased to $13.60/share (+10cps) with DCF roll-forward more than offsetting the minor earnings downgrades.
Encar growth slowdown timing related
Despite the weaker performance in FY18, Deutsche Bank views the slowdown in earnings at Encar as largely timing-related, with management pointing to a potential impact from the Winter Olympics and investment in the business given the move to full control. We expect growth in EBITDA for Encar to return to 20% in FY19 (DBe from 6% in FY18), with management having a number of levers at their disposal post the move to full ownership (including price increases, pay-per-lead, dealer data services and finance solutions).
Continued pick up in new car sales presents volume upside
Whilst CAR’s volumes are primarily linked to used-car volumes, our analysis of growth in new car sales relative to stamp duty payments suggests there is a very close correlation in the movement of new and used car volumes. As such, if the recent pick up in new car volumes continues, we see clear scope for potential upside to its volume forecasts for CAR.
Price Target of $13.60/share (+10cps); Key risks
Deutsche Bank’s TP of $13.60/share (prev $13.50/share) is based on DCF. (Beta 1.05; WACC 9.0% & TGR 3.5%). U/D risks: faster recovery of Stratton operations; increased associate earnings; competitive pressure and deterioration in dealer relationships (refer to page 8).
hl=en&q=http://Carsales.com&source=gmail&ust=1518132117522000&usg=AFQjCNEEFbXRn3FQKI3ntilNMW6GOzO3hw”>Carsales.com – 1H18 Results – Korea slightly weaker but largely due to timing issues
07 February 2018 (9 pages/ 583 kb)
Carsales.com {Ticker: CAR.AX, Closing Price: 14.12 AUD, Target Price: 13.60 AUD, Recommendation: Hold}
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