Carsales.Com Ltd (ASX: CAR) has reported its FY19 half year result to 31 December 2018, is it a buy?
Carsales was founded in 1997, it’s the largest automotive, motorcycle and marine classifieds business in Australia. It is headquartered in Melbourne and employs more than 1,200 people around the world. The company has operations in the Asia Pacific region and has stakes in businesses in Brazil, South Korea, Malaysia, Indonesia and Thailand.
What Carsales Reported
Carsales reported that total revenue increased by 17% to $235 million. Most of this growth was related to Carsales Asia with the acquisition of SK Encar. Excluding that acquisition, revenue was only up 3%.
EBITDA increased by 8% to $98.1 million (click here to learn what EBITDA is), but without the SK Encar acquisition EBITDA was actually down by 7%.
The international businesses made a lot of progress, with International ‘look-through’ revenue increasing by 79% and EBITDA growing by 83%. In local currency: Brazil grew revenue by 31% & EBITDA grew by 54% and South Korean revenue grew by 20% and EBITDA went up by 22%.
The key disappoint was that reported net profit after tax fell by 82% because of a $47.8 million impairment to the company’s investment in car financing business Stratton due to the impact of ASIC’s legislative changes and continuing tight credit market conditions.
Excluding that writedown, net profit fell by 2% to $60.2 million due to weaker revenue in the domestic ‘Display’ and Stratton segments. New car sales in-particular have seen a slowdown, which has stunted growth in the two affected segments.
Carsales Dividend
Due to the profit decline, Carsales decided to maintain the dividend at 20.5 cents per share, which was the same payment a year ago.
Carsales Management Comments
Carsales CEO Cameron McIntyre said: “We have reinforced our leadership position in our domestic market, reflected in the pleasing growth of the core private, dealer and data business divisions.
“Dealer lead to sale closing ratios continue to improve, which is testament to our sustained investment in reducing friction in the buy/sell process.
Carsales Outlook
Mr McIntyre said that assuming conditions remain consistent in each of its markets, the company expects “moderate” revenue, EBITDA and adjusted net profit growth.
The Finance segment will remain challenged with the tightening of credit due to the Royal Commission,
However, on the international side the company expects strong growth in South Korea and Brazil.
Is Carsales A Buy?
Even without the writedown, the consensus market expectations were for a net profit result of $67.8 million according to Bell Potter. With the market expecting growth and the company reporting a 2% decline the Carsales share price will probably be treated negatively when trading opens.
The international business is generating compelling growth, but the domestic business still represents the vast bulk of earnings and that is facing tough conditions at the moment. I don’t think Carsales is a buy until at least new car sales start growing again, which could be until property prices stop falling.
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