Auto Trader poised to benefit from shift to digital trading
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Auto Trader, the Manchester-based digital car dealing group, said it stands to benefit from a shift by consumers to online purchases following the coronavirus pandemic.
And although revenues and profits were down for the year to March 31, the group said it is confident about its future.
Today’s published results show turnover of £262.8m, down from £368.9m in 2020, and pre-tax profits of £157.4m, compared with £251.5m the previous year, which, it said, was as a result of the decision to provide free advertising to its retailer customers in April, May, December and February and at a discounted rate in June.
Following a share placement of 46 million shares, worth £182.9m in April 2020, and subsequent trading results, the group had a net cash position of £15.7m at year end, against net bank debt of £275.4m in 2020.
A final dividend of 5p per share has been declared, which is also the total dividend. This compares to no final dividend last year, and a total dividend of 2.4p per share.
The group reiterated its capital policy of continuing to invest in the business enabling it to grow while paying around one third of net income to shareholders in the form of dividends. It aim to return the remaining surplus cash to shareholders through share buy backs, which will recommence shortly.
Chief executive, Nathan Coe, said: “We decided early on to proactively support our people, car buyers and our customers, many of whom run small family-owned businesses. These actions have positioned us for a strong start to this next financial year.
“There has been a dramatic shift towards buying online which means we now have more buyers than ever turning to Auto Trader to help with their next car purchase, making us even more relevant to retailers and manufacturers. This positions us ideally to enable the buying and selling of cars online, which will materially improve the car buying experience and the business of our customers.
“I want to thank everyone who has trusted and relied on us, particularly my Auto Trader colleagues who have shown unwavering commitment under the toughest of circumstances. Together our collective efforts have built the strongest of foundations to support the industry in transitioning to true multi-channel retailing underpinned by technology”
The group said it has started the new financial year in a strong position as a result of the actions taken in the last year.
It said this is reflected in its recent trading performance, a strong pipeline of product innovations and improved relationships with customers. It added that, in the longer term, it will be beneficiaries of the major changes under way in the car retailing market, where more of the buying journey is moving online.
Despite unusually strong demand and tight supply, COVID-19 is currently having little impact on the financial performance of the business as it starts financial year 2022. However, it said, as seen in other countries, there can be no certainty that COVID-19 will not reappear as a significant negative factor in the group’s future performance.
Therefore, assuming no significant restrictions, in the year ahead Auto Trader expects to deliver high single digit growth and operating profit margins that are in line with FY20 levels.
A group statement said: ” As we started the year, we successfully executed our annual pricing event in April 2021 including the launch of Retailer Stores, which offers customers their own dedicated, customisable location on Auto Trader.
“Retailer numbers for the year are likely to be in line with FY20 levels and stock is still expected to be a small headwind. Consumer Services and Manufacturer & Agency revenue, which make up 14% of group revenue, will recover from FY21 lows, but are unlikely to reach FY20 levels, as sellers favour part-exchange and new car advertising is impacted by semiconductor supply issues.
“The board is confident for the future prospects of the business.”
Russ Mould, investment director at Manchester investment platform, AJ Bell, said: “The drop in full year profit announced at Auto Trader is firmly in the rearview mirror now as investors focus instead on the buoyant market conditions which are helping to drive a gear change in profitability in the current financial year.
“The profit drop resulted from the discounts and free advertising slots given to clients during the pandemic and this action may well have strengthened and deepened these relationships.
“This is crucial as Auto Trader’s profit growth is heavily reliant on upselling an increasing range of services to its car dealership customer base.
“The company’s dominant market share means it benefits from a network effect – it is the one most visited by prospective car buyers because it has the most listings. Car retailers are, therefore, compelled to use its products, reinforcing its position.”
He added: “The company is also working on new innovations like offering guaranteed part-exchange and allowing users to make reservations on vehicles.
“And the current production issues affecting the manufacture of new vehicles mean demand for used cars is very much in the fast lane.
“Limits on the availability of stock are only seen as being a modest speed bump for Auto Trader and CEO Nathan Coe, who took the wheel just as COVID hit, should now have a clearer path to take the business in the direction he wants.”