Carsales (ASX:CAR) reveals update and FY20 profit estimate

Carsales (ASX: CAR) has revealed an update this morning and also gave a profit estimate for FY20. The Carsales share price is up 3% in early reaction.

What is Carsales?

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.

Carsales’ FY20 profit estimate

The company wants to keep the market as well as informed as possible, so it has tried to estimate what its FY20 numbers will be.

Its ‘adjusted’ figures includes around $26 million of revenue that’s billed but not charged pursuant to the COVID-19 support package, the company says this better reflects the underlying activity of the business.

Adjusted revenue is expected to be between $419 million to $423 million, which would be growth of 0% to 1%.

Adjusted EBITDA (click here to learn what EBITDA is) expectations are for $228 million to $232 million, which would be growth of 5% to 6%. The adjusted EBITDA margin is expected to be 54% to 55%.

The adjusted net profit after tax (NPAT) is expected to be between $134 million to $138 million, this would be growth of 2% to 3%.

The car portal business also released some estimated statutory numbers. Reported revenue is expected to be between $393 million to $397 million, which would be a decline of 5% to 6%.

Reported EBITDA is expected to be between $199 million to $203 million. This would be a decline of 5% to 7%.

Reported net profit is expected to be between $120 million to $124 million, which would be a decline of 6% to 9%.

Carsales business update

Since the last update overall leads and traffic volumes have continued to improve according to the company. Between 22 April 2020 and 16 June 2020 lead volumes have grown “very strongly” on the prior corresponding period in 2019.

Inventory has decreased on the Australian site over the last six weeks. Management surmised that this happened because it’s taking a lot less time to sell, dealers are finding it harder to obtain new and used cars in the current environment, and there are more first time car buyers and people adding an additional car to the household as people try to avoid public transport.

In Brazil the escalation of COVID-19 is impacting Webmotors’ operating metrics. However, the Encar business continues to perform well with good growth in revenue and EBITDA.

The company confirmed it has refinanced part of its debt by extending the maturity date and upsizing it by $105 million. Carsales said it isn’t likely to change its dividend policy of paying around 80% of adjusted net profit after tax.

Summary

Carsales seems to be doing quite well under these difficult circumstances. Considering the Carsales share price has bounced back so hard, I’m not sure it’s an obvious buy. I don’t know what the long-term looks like for car sales with automated cars on the horizon. I’d rather buy a growth share like Bubs (ASX: BUB).

Disclosure: At the time of writing, Jaz doesn’t own shares in any of the businesses mentioned. 

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