Reporting Season: LatAm Autos adds extended warranty product
Name: LatAm Autos (ASX:LAA)
Market Cap: $70 million
Last Closing Share Price: $0.20
Foster Stockbroking: Buy Recommendation
LatAm Autos (ASX:LAA) has taken another step in transitioning to an online vehicle transaction marketplace, involving the offer of a wide range of cross sell products to vehicle buyers and sellers.
This has been facilitated by the launch of a new product in partnership with SNG Group, a leading provider of mechanical warranties for new and used cars.
Through the white label Motorfy Extended Warranties product, car dealer customers will be able to offer extended warranties to car buyers and sellers alike.
As a backdrop, LAA is a leading online car transaction market place with operations in Mexico, Ecuador and Peru.
However, it remains a speculative stock and investors should seek professional financial advice if considering LAA for their portfolio.[J1]
The company is capitalising on the shift of automotive classifieds advertising to online channels, whilst providing ancillary services to car buyers such as finance, insurance and car tracking technology through its Motorfy brand.
The new product is integrated directly to the company’s payment gateway and internal CRM and will automatically form part of any financed vehicle through Motorfy, unless customers choose to opt out.
Foster positive on the deal
Matthew Chen from Foster Stockbroking highlighted that MotofyGarantias offers warranty protection to car buyers on a one or two year plan with no excess on claims up to US$5,000.
A car buyer can purchase Garantias in a bundle with Motorfy Credit, or as standalone product.
Chen noted that the warranty product has no recourse to LAA.
LAA has an exclusive distribution arrangement with SNG, an auto warranty manager, who bears the risk of honouring the warranty.
SNG is a subsidiary of Peña Verde SA de CV, a holding company with a market capitalisation of US$260 million. The group owns insurance and reinsurance companies operating in Mexico.
Estimated circa $150 per warranty product
Foster estimates each extended warranty product increases total average revenue per unit (ARPU) for a Motorfy bundle product by 23 percent. As a standalone each extended warranty product generates revenue to LAA equivalent to 2.2x the average monthly classifieds only package. Based on research from Foster the addressable market is circa $1 billion, assuming six million cars sold per year in Mexico.
Although, it should be noted that broker projections and price targets are only estimates and may not be met. Those considering this stock should seek independent financial advice.
Chen is forecasting LAA to reach a cash flow breakeven point by the end of calendar year 2018. He estimates that LAA will turn a profit of $700,000 in fiscal 2019, increasing to $9 million in 2020.
Consequently, Chen sees the stock as a medium-term high growth story with a price target of 30 cents, a premium of 50 percent to its last closing price.
The past performance of this product 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.