Why The AP Eagers (ASX:APE) Share Price Is Down

Companies and indices mentioned:

The AP Eagers (ASX: APE) share price is down 4% in early trading in reaction to a trading update.

A.P. Eagers is Australia’s oldest listed automotive retail group, it has been going for over a century. It operates automotive dealerships across Queensland, South Australia, New South Wales, Victoria, Northern Territory and Tasmania. It has over 4,500 employees.

AP Eager’s Painful Trading Update

The car dealership business has admitted that trading conditions remain challenging with the overall market for new vehicle sales in decline for 19 consecutive months, representing a decrease of 126,000 units sold over the same period.

For the 10 months ended 31 October 2019, national new vehicle sales are down 8% on the prior corresponding period.

As a result of the above volume declines, AP Eagers disclosed that its underlying operating profit before tax for the 10 months ended 31 October 2019 was down 6%.

But this underlying number doesn’t include the sale of non-core operations and property during the period as well as one-off costs related to the merger that have been excluded and will be included in the company’s full year result.

On 16 September 2019 the company took control of Automotive Holdings Group and on 22 October 2019 announced the executive management and operational leadership structure for the merged group.

AP Eagers said it has reviewed AHG trading since the start of FY20, with the core AHG business being Franchised Automotive, Trucks, Amcap and EasyAuto123 combined contributed underlying operating profit before tax of $4.8 million.

However, whilst AHG has also suffered because of industry conditions, EasyAuto123 contributed a loss of $2.5 million even though its profit improved compared to last year in the four months to October 2019. Management are taking steps to improve the performance.

Apart from that, AP Eagers said the integration of AHG is progression to plan with it on track to achieve the full $30 million synergy savings target with an annualised $13.5 million achieved by 31 December 2019 with the rest of the savings in 2020.

AHG’s Refrigerated Logistics business is getting closer to being sold, it has entered the due diligence stage after a number of bids.

AP Eagers CEO Martin Ward said: “AP Eagers is not immune to the external trading environment which remains challenging. The AHG business has been a wholly owned subsidiary of AP Eagers for only sixty days and, while its operating profit contribution since July is disappointing, it is not unexpected.

It remains our firm belief that combining these two businesses to build a truly national footprint will place us in the strongest possible position to thrive as the industry continues to evolve and change.”

At the time of publishing, Jaz does not have a financial interest in any of the companies mentioned.

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