Carsales provides positive outlook statement

By Trevor Hoey. Published at Aug 9, 2017, in Features

Carsales.com (ASX: CAR) released its full-year result for fiscal 2017 on Wednesday morning, exactly 12 months to the day since its 2016 result triggered a share price increase of 10%, taking it to an all-time high of $13.63.

Of course it should be noted that share trading patterns should not be used as the basis for an investment as they may or may not be replicated. Those considering this stock should seek independent financial advice.

Since then it has been somewhat of a rollercoaster ride for the operator of the largest online automotive, motorcycle and marine classifieds business in Australia. As tech stocks took a hit in the US towards the end of 2016, CAR’s share price plunged to less than $10.00.

Consequently, it will be interesting to see how today’s result is received. Firstly, let’s look at what the market was expecting. Analysts at Macquarie were forecasting a net profit of $115.1 million, representing earnings per share of 47.7 cents.

The broker was tipping a final dividend of 21 cents, bringing the full year dividend to 39.7 cents. This was broadly in line with the final dividend of 21.5 cents per share declared by management today which brought the full year dividend to 40.2 cents.

By contrast, CAR has substantially outperformed Macquarie’s expectations at the earnings line with a net profit of $119.1 million representing earnings per share of 49.4 cents.

Yet, it should be noted that broker projections and price targets are only estimates and may not be met.

This represents the fifth consecutive year of strong performances by the group as can be seen below.

Carsales revenue figures

The past performance is not and should not be taken as an indication of future performance. Caution should be exercised in assessing past performance. This product, like all other financial products, is subject to market forces and unpredictable events that may adversely affect future performance.

Key takeaways from a corporate, operational and outlook perspective

At the half-year mark, Managing Director, Greg Roebuck flagged a ‘solid uplift in revenue and earnings’ driven by the acquisition of DeMotores and the integration of core carsales IP into its Chilean and Mexican businesses.

While he noted that the economy in Brazil remained challenging, from an overall perspective the company made a positive start to the second half.

Commenting on its overseas operations today, CAR noted that it had continued to work well with partners in Brazil and South Korea, resulting in excellent growth in those markets as the management teams of both Webmotors and SK Encar continued to extend their market leading positions.

Not only does this confirm that the company has successfully addressed the challenges flagged after the first half, but from a corporate perspective it should also provide confidence that incoming Managing Director, Cameron McIntyre has successfully transitioned into the role, having taken over from co-founder and long serving MD, Greg Roebuck.

McIntyre provided a positive outlook statement from a qualitative and quantitative perspective in saying “Internationally, assuming market conditions remain stable, Korea is expected to see good local currency revenue and earnings growth and there are positive signs regarding macroeconomic conditions in Brazil”.

As can be seen below, revenues from the company’s overseas operations are playing an ever-increasing role in generating both gross and diversification within the business.

Carsales look through revenue

The group also continues to focus on the benefits from integrating its intellectual property with McIntyre saying, “We expect integration of core carsales IP and technology into our Chilean, Mexican and Argentinian businesses to continue, and this should provide an uplift in their revenue and earnings in FY18”.

S3 Consortium Pty Ltd (CAR No.433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information only. Any advice is general advice only. Neither your personal objectives, financial situation nor needs have been taken into consideration. Accordingly you should consider how appropriate the advice (if any) is to those objectives, financial situation and needs, before acting on the advice.

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S3 Consortium Pty Ltd does and seeks to do business with companies featured in its articles. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this article. Investors should consider this article as only a single factor in making any investment decision. The publishers of this article also wish to disclose that they may hold this stock in their portfolios and that any decision to purchase this stock should be done so after the purchaser has made their own inquires as to the validity of any information in this article.

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