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Auto Trader accelerates as digital dealer finance adds new gear

Auto Trader pulled up to the City bumper with full year results as its efforts to control costs and develop new products allowed it to cope with a decline in new and used car deals.
In the year to March 2018, sales decreased for both new and used cars, with industry forecasts suggesting both markets will remain in a lower gear for the rest of 2018. While the car industry saw new registrations skid 11% lower to 2.4m in the 12 months to 31 March, lower rates of scrappage resulted in used car transitions falling 3% to 7.9m.

However, the online retailer lifted revenue 7% to £330.1m as the average number of cars on its website increased 1% to 453,000, while profit before tax rose 10% to £210.8m as costs were controlled and car retailers and manufacturer adopted the company's new digital products. Both revenue and PBT were basically in line with consensus forecasts of £330.5m and £211m.

Auto Trader benefitted from continue increases in used car prices, up 5.4% to an average of £12,171 over the 12-month period versus the previous year on a like-for-like basis that strips out the impact of changes in the mix of cars being sold.

Basic earnings per share was also increased 15% to 17.76p per share as the FTSE 250 group carried out £96m of buybacks in the year as cash generation strengthened £13.2m to £226.1m.

Further on the plus side, a proposed final dividend of 4.0p per share lifted the year's total to 5.9p, which was better than the 5.7p expected.

Looking forward to the new financial year, chief executive Trevor Mather said: "We have taken a big step in our strategy of improving car buying in the UK by launching the Dealer Finance product which allows consumers to find their next car by monthly payment and allows retailers to advertise finance on their cars earlier in the buying journey."

April saw the Dealer Finance product taken up by 69% of car retailers, alongside an annual pricing event, which Mather said if accompanied by continued upselling onto higher-level packages, will deliver higher levels of price and product average revenue per retailer growth in 2019.

But with fewer cars for sale in the market, a small decline in stock is anticipated, moderating ARPR growth to be below that of 2018.

Average retailer forecourts are expected to decline this year at a similar rate to last year, but with Manufacturer & Agency market share gains from the new InSearch product is expected to lead to accelerated growth there.

Private listings are "likely" to continue to be squeezed by the broader economic uncertainty that was seen in the UK in recent months, though operating profit margins are expected to increase as total operating costs increase at a low to mid-single digit rate.

"The new financial year has started well, and the board is confident of meeting its growth expectations for the year," Mather said.

Shares in Auto Trader revved higher on Thursday, accelerating more than 8% to 383.9p, the highest level since mid-March.

Broker Liberum said results looked in line with expectations both on the financials and metrics, with adjusted EPS better than its 17.5p forecast, retailer forecourts down 1% to 13,213 versus its estimate of 13,230 and ARPR up to £1,695 versus a £1690 estimate.

Liberum noted the new year has started well on the Dealer Finance product, "which we see as a significant driver of revenue growth over time", while average retailer forecourts are expected to decline at a similar rate to FY18, "which is line with our numbers".

"Operating costs are expected to rise low to mid single digits, we have a 3.7% increase, and operating margins are expected to rise, we have a 130bps increase."

Analyst Roddy Davidson at Shore Capital said he was encouraged by the solid performance and outlook comments highlighted above and more broadly was positive on the "strategy, track record, brand strength, unrivalled reach and the quality and value-add of its dealer and consumer offerings".

He also noted that May was the second consecutive month of growth in new UK car registrations following 12 months of declines - "which could be positive for dealers advertising budgets".

He forecasts attractive medium-term EPS of circa 25% and dividend growth of 24% through to FY20.

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