Eagers Automotive: Order book continues to charge up

About the author:

Author name:

By Scott Murdoch

Job title:

Senior Analyst

Date posted:

24 February 2023, 8:30 AM

Sectors Covered:

Diversified Financials, Professional Services

• Eagers Automotive's (ASX:APE) underlying PBT of A$405.2m slightly beat expectations. 2H22 PBT of A$210m was up 7.7% HOH. FY22 DPS was +13.6% to 71cps.
• APE set a FY23 revenue target of A$9.5-10bn (+11-17%) underpinned by FY22 acquisitions; BYD sales/deliveries; and organic growth initiatives.
• Order book growth continues at ~30% growth per half (including into CY23), underpinning both revenue and margin outlook in FY23 ( and likely well beyond).
• The order book has over a two-year run off period (yet to commence) providing solid near-term visibility. Cycle aside, APE is executing on building a sustainably higher earnings base via further consolidation, ongoing efficiency, new OEM strategies and new sales channels. Add maintained.

2H22 delivers solid sales and margin outcome

APE delivered pre underlying NPBT (pre-AASB16) of A$405.2m (pcp A$401.8m); stat A$442.2m PBT (pcp A$456.8m); and A$324.3m stat NPAT (pcp A$338.7m). 

Group PBT margin of 4.7% for FY22 (1H4.6%; 2H 4.9%). APE noted margins have strengthened across all business units (not just New), excluding EA123. 

FY22 GP margin of 19.2% was strong, up on ~50bps on FY21; and ~120bps above APE’s 18% long-term average.

Operating CF was A$407.5m (vs A$302.7m in pcp). Net corporate debt (excluding bailment) closed at A$253.4m (from A$128.4m pcp), which includes ~A$150m of acquired property. Available liquidity (cash and undrawn debt) is ~A$631m.

Final dividend of 49cps was up 15% on the pcp, bringing FY22 dividends to 71cps.

Order book underpinning outlook

Revenue expectations: APE set expectations of at least A$1bn uplift in revenue (A$9.5-10bn targeted; +12-17% on FY22). Around A$400m is expected from acquisitions made in CY22; >A$450m from BYD deliveries; and the remainder from other greenfield/organic growth drivers (eg, Automall, EA123). The full consolidated BYD revenue is include in the target (APE has a 50% JV share).

Order book growth: APE’s order book is +74% on the pcp, with +29% growth over the 2H22 (six months). There has been no meaningful change in cancellation rates (immaterial at <5%). Order write has continued to track well above deliveries: in 2022 orders were +34% above deliveries (dipped to +24% in 4Q22) which has continued into CY23 (+34% above deliveries again in Jan-23). 

Order book – the long unwind: APE noted that using record annual industry deliveries (1.189m) and record industry low demand (916k), it would take more than two years to fully unwind the current order book. We estimate that the order book represent >7-mths typical supply.

BYD & EV’s: first deliveries of BYD occurred in 2H22 with expectations of a material number of sales in FY23 (>10k units). Scale and national presence place APE extremely well to benefit from the EV transition: national OEM partnerships (eg, BYD); service arrangements (Polestar); and a national presence to service high demand from Fleet and novated channels (EV policy spike in demand expected).

Forecast upgrades

EPS upgrades: FY23 +7.8%; FY24 +16.7%.

Our underlying NPBT sits at A$421m (A$405.2m FY22).

We note that this includes APE’s share of BYD JV contribution.

Investment view – Add maintained

APE is trading on ~11x FY23 PE; and ~12.2x FY25 PE (a more ‘normalised’ margin of 3.8% assumed).

If we factored in a return to long-run average ROS margin (~3.6%), APE would still be trading on ~13x (on an achievable A$10bn rev base).

More consolidation will occur and we expect changing industry dynamics will support scale operators long term.

Risks

• Further deterioration in car supply.
• Significant demand fall.
• F&I regulatory risk.
• Impacts from industry change (eg agency model).

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