Carsales.com: Multiple growth angles still in play

About the author:

Author name:

By Steven Sassine

Job title:

Associate Analyst

Date posted:

14 February 2023, 8:00 AM

Sectors Covered:

Diversified Financials

• Carsales.com (ASX:CAR) released its 1H23 result, which on an adjusted basis was a slight miss at the topline and EBITDA (-4-5%) vs Visible Alpha consensus but in line with NPAT. It was a broadly solid update, highlighted by: the strong momentum in Private and all segments achieving double digit revenue growth on a pro forma basis.
• We make only minor changes to our revenue forecasts (-3%-+1%) across FY23- FY25, with better than previously forecast operating leverage leading to a ~+0.5%- 3% uplift in EBITDA. Our price target lifts to (login to view). Hold maintained.

1H23 result

CAR released its 1H23 result, which on an adjusted basis was a slight miss at the topline and EBITDA (-4-5%) vs Visible Alpha consensus but in line with NPAT.

Adjusted revenue of ~A$332m was +37% on pcp, EBITDA of A$178m (+41% on pcp), EBITDA margin of ~54% (in line with MorgE) improved on pcp and Adj. NPAT of A$122m was +37% on pcp. CAR announced a 28.5cps dividend (+12% on pcp). 

It was broadly a solid result from CAR, in our view, which saw double digit revenue growth across all its business units/regions on a pro forma basis.

Analysis

Within Carsales Australia, ‘Private’ was a result highlight in our view, with revenue up 39% (to ~A$44m) on record seller ad volumes, elevated used car prices (still ~40% above pre-pandemic levels) and dynamic pricing. Outlook commentary was also upgraded for this business for “strong” revenue growth on sustained volumes and further contributions from Instant Offer (having more than doubled volumes on improved algorithms/brand awareness). ‘Private’ appears to be starting 2H23 with decent momentum with the yield exit run-rate higher than the period average.

‘Dealer’ Adjusted revenue grew 10% to ~A$95m. Continued demand for used cars and yield growth (intro of premium price tier) were the primary drivers of revenue growth. We note commentary suggested an increase in depth campaigns towards end of 2Q23 as inventory levels look to be normalising and velocity of turnover has partially eased.

‘Media’ revenue grew 10% on pcp to ~A$28m with 1H23 being the 4th consecutive half of double-digit revenue growth for this segment. Moving into non-auto is assisting with this growth (+2% contribution). Data, Research and Services saw a small uptick of 2% in revenue to ~A$22m, whilst ‘CAR Investments’ saw revenue growth of 11%, to ~A$30m. Adj EBITDA was down A$1.6m to -A$2m on additional investment in Placie and higher freight costs in the tyres business.

Internationally: Trader Interactive (TI) saw pro forma revenue (~A$115m) and Adjusted EBITDA (~A$68m) growth of 21% and 26% respectively with a strong EBITDA margin outcome (expanding 2% to 59%). The RV and powersports verticals grew strongly on customer acquisition, penetration of premium products and increased inventory levels. TI also saw positive momentum in ‘commercial’ on improving inventory.

We note prior price rises assisted the business via a ~6% yield uplift in 1H23 and TI has flagged further price increases (high single-digit) across all verticals which will be effective from March/April (expecting ~7% yield uplift as a result). Newly released products such as Lead Amplifier and Dynamic Pricing (live from Feb-23 for RV’s, powersports to follow) are expected to drive continued yield growth.

Encar grew revenue/EBITDA by 7%. Guarantee (+10% revenue growth) and Encar Home (+33% revenue growth) both performed well. Guarantee inspections now represent 42% of total inventory up from 39% in Dec-21. In Brazil, Webmotors had a solid result, with revenue and EBITDA up 23%/8% respectively on a constant currency basis.

Changes to forecasts and Investment view

We make only minor changes to our revenue forecasts (-3%-+1%) across FY23- FY25, with improved margins (on better than previously forecast operating leverage) leading to a ~+0.5%-3% uplift in EBITDA. Our price target lifts to (login to view).

We believe CAR is continuing to lay the foundations for longer term growth, both within Australia and internationally, whilst fortifying the moat around its business by enabling dealers to bring most of the transaction online.

We remain attracted to the long-term growth opportunity of CAR and continue to look for an attractive entry point into the name. Hold maintained.

Find out more

You can find further detailed analysis of company results this reporting season by browsing our reporting season tag, and view a full list of upcoming results on our Reporting Season Calendar.

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