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Auto Trader Group Plc FY17 Results – Zeus Capital Comments

Auto Trader Group Plc (LON:AUTO) has announced results for the 12 months to 31 March 2017 this morning, with performance slightly ahead of market expectations. Growth continues to be price driven, with average revenue per retailer forecourt (ARPR) ahead of expectations, +11.7% YoY, whilst the number of forecourts advertising on Auto Trader has declined 1.6% over the past 12 months. We continue to believe that on a PER of 25.3x the shares look expensive and we see BCA Marketplace on an FY18 PER of 19.2x as our preferred play on the sector with real structural growth opportunities and the benefit of pan European scale.

Full year results: Revenue of £311.4m is up 10.6% YOY (consensus £311.3m, ZC £309.2m), benefitting from five additional trading days in the current year, adjusting for this, sales were +9.0%. Underlying operating profit of £207.2m is up +19.0% on prior year (consensus £205.5m, ZC £199.1m). This translates to adjusted EPS of 15.6p (consensus 15.5p and ZC 15.3p) with 26.5m shares repurchased over the last year. A final dividend of 3.5p was announced today, giving a full year dividend of 5.2p (consensus 5.1p, ZC 5.1p), which equates to a yield of 1.2%.

Operational highlights – Average monthly visits across all platforms were up 16% YoY to 55.4m, a slight moderation on the 58.5m visits per month across H1. Average advert views per month were also higher at 247m, +2.0% YoY. Despite this, the number of retailer forecourts advertising on Auto Trader has declined -1.6% over the period, an acceleration on the -1.0% fall seen in H1, with the Group identifying smaller and non-car related markets as the driver of this decline. Price increases continue to drive top line growth with average revenue per retailer forecourt +11.7% YoY to £1,546.

Outlook – The company’s outlook statement highlights the slowing new car market, with car registrations expected to plateau or decline in 2017, a trend reflected in the latest SMMT data which showed vehicle registrations down -8.5% in May. Whilst Auto Trader is focused on the used car market, we are conscious of any negative consumer sentiment that could also impact the second-hand market. In our view, with the market slowing in 2017 and dealer profitability being squeezed, we believe Auto Trader may find it increasingly difficult to execute its strategy of continued upselling; it is targeting an £130 increase in monthly ARPR in FY18.

Forecasts – Our forecasts continue to sit at the bottom end of the consensus range and we remain cautious about the underlying car market over the year ahead.

Investment view – We continue to believe Auto Trader Group Plc shares look expensive on 25.3x EPS for sub 15% EPS growth. We also believe the end market dynamics will get more difficult for the company, and would prefer to play the sector via BCA Marketplace offering critical and physical infrastructure to the market with rich data services on a Pan European scale at a lower valuation at 19.2x PER for FY18.