Why AP Eagers (ASX:APE) shares are driving higher

AP Eagers (ASX: APE) shares are racing higher, up 7% with the company holding its AGM for shareholders.

AP Eagers is the largest car dealership in Australia. It has been operating for over a century after being established in 1913.

FY20 update

Annual general meetings are usually focused on reviewing what happened in the previous financial year. But the AP Eagers leadership gave a sizeable update about how FY20 is going with COVID-19.

Management said that there has been a significant impact on the automotive retail industry. The car dealership business reduced its headcount and its fixed monthly cost base was cut by $6 million. However, the company managed to save many jobs with the help of jobkeeper. It was able to rehire 165 people due to jobkeeper as well.

The company has tried to optimise the existing business to achieve a significant cost reduction of around $78 million per year.

AP Eagers is expecting an underlying profit from continuing operations of $40.3 million, which represents a 23.6% decline from last year. Management think this is actually a pretty resilient operating performance considering the declines experienced in April and May.

The leadership are pleased with the company’s financial position with a substantial property portfolio and $633.9 million of available liquidity. This financial position provides the buffer to withstand long term impacts of COVID-19, according to AP Eagers.

Summary

The new car market is really struggling – there’s a lot of uncertainty for household budgets at the moment. I’m not sure what the right price is for AP Eagers. For the long term there’s also a question of what automated cars will do to car dealership businesses. It’s not the type of investment I’d look for in my portfolio. I prefer the idea of shares with better growth prospects like Bubs (ASX: BUB).

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At the time of publishing, the author of this article does not have a financial or commercial interest in any of the companies mentioned.

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