Auto Trader Group PLC

Auto Trader Group PLC (AUTO) is a Manchester, United Kingdom-headquartered digital automotive marketplace. The consumer helps in bringing together the largest pool of vehicle sellers in the country with a targeted consumer audience.

Recent Development
The company on 29 April 2019 announced a board shake-up following the retirement of chief executive Trevor Mather after six years at the helm of the largest digital automotive marketplace in the country. Mr Nathan Coe, present CFO and COO, will become the CEO with effect from next financial year and was promoted to the role of CEO-designate with effect from 1 May 2019.
 
Financial Highlights (FY 2019, £m)
 
(Source: Company Filings)

The company’s reported revenue surged by 8% to £355.1 million as compared with the financial year 2018 of £330.1 million, due to an increase in revenues from trade and manufacturer & agency segments but offset by a decline in revenues from consumer services. The operating profit rose by 10% to £243.7 million against the £221.3 million in FY18, while operating profit margin increased to 69%. Profit before tax climbed by 15% to £242.2 million as compared to £210.7 million in FY18, due to the gain recognised on disposal of Smart Buying to the joint venture with Cox Automotive. Basic earnings per share increased by 18% to 21 pence as compared with the financial year 2018 of 17.74 pence. Cash generated from operations increased by 13% to £258.5 million against the £228.4 million in FY2018. Amount returned to shareholders totalled to £151.1 million through share buy-backs of £93.5 million and dividends paid of £57.6 million. Gross external bank debt declined from £343 million in FY18 to £313 million in FY19. The Board proposed a final dividend per share of 4.6 pence as compared with the financial year 2018 data of 4.0 pence per share. The total dividend per share increased by 14% to 6.7 pence against the 5.9 pence in FY2018.

Valuation Methodology
Method:  Price/Cash Flow Approach (NTM)
 

Share Price Commentary
 
Daily Chart as at 14-August-19, before the market closed (Source: Thomson Reuters)
 
On 14 August 2019, at the time of writing (before the market closed, GMT 09:10 pm), AUTO shares were trading at GBX 514.4, down by 1.83% against the previous day’s closing price. Stock's 52-week High and Low prices are GBX 606.80/GBX 375.60. The company's stock beta was 0.27, reflecting less volatility as compared to the benchmark index. Total outstanding market capitalisation was around GBP 4.86 billion, with a dividend yield of 2.58%.

Conclusion
During the last financial year, new car sales fell by 3.7%, on top of an 11% decline, which could have resulted in a contraction of the number of retailers and led to fall in advertising spends. A slow market leads to a decline in the number of new or used car transactions, directly impacting the earnings of the company. In the latest quarter, the UK economy contracted by 0.2%, showcasing the impact the general economy would have due to impending Brexit. Being in a discretionary industry, the market for cars would be highly affected, which does not augur well for the group.
 
Based on the headwinds faced by the group, we have given a "WATCH" recommendation at the closing price of GBX 524.00 (as on 13 August 2019), while we look for any upcoming catalysts in the near term.

*Peers of the company are Informa PLC, Moneysupermarket.Com Group PLC, Rightmove PLC and Just Eat PLC
 

Kier Group PLC

Kier Group PLC (KIE) is a Bedfordshire, United Kingdom-headquartered infrastructure, buildings, developments and housing group with 400 projects spanning the UK and the Middle East. The operations are differentiated in four operating segments, namely Property, Residential, Construction and Services.

Strategic Review
The company on 17 June 2019 announced its strategic review which aims to further simplify the company, including focusing on Regional Building, Infrastructure, Utilities and Highways. It also aims at delivering annual cost savings of approximately £55m from FY2021 and restructuring the company to reduce headcount by around 1,200. Environmental Services, Facilities Management, Property and Kier Living would be sold or substantially divested to simplify the portfolio. Dividend payments for FY 2019 and FY 2020 were suspended.

Post-Close Update
In the financial year 2019, the company reported that its average month-end net debt was £422 million and its net debt as at 30 June 2019 was £167 million. As a result of non-completion of property and land-led transactions in June 2019, turnover for the 2019 financial year is expected to be approximately £100 million lower than the prior year, though Infrastructure Services and Buildings divisions remained resilient. Financials for the year will be published on 19 September 2019.

Financial Highlights (H1 FY 2019, £m)
 
(Source: Company Filings)

Statutory revenue in the period rose by 3% to £2,064.7 million. Underlying revenue for H1 FY19, rose by 2% to £2,201.5 million as compared with £2,149.9 million in H1 FY18. Statutory operating loss was £20.9 million, against an operating profit of £48.1 million in the prior year. The underlying operating profit was £51.8 million for H1 FY19 and declined by 15% as compared to the prior year mainly due to the net costs of £10 million relating to the implementation of the Future Proofing Kier programme undertaken by the group. Underlying basic earnings per share stood at 30.8 pence as compared with EPS of 40.9 pence in H1 FY18, while statutory basic loss per share was reported at 28.9p, against EPS of 28.7p in H1 FY 2018. The company reported an average month-end net debt of £430 million for the period (H1 FY18: £350m) and debt position of £180.5 million at 31 December 2018 (H1 FY18: £238.5m).

Share Price Commentary
 
Daily Chart as at 14-August-19, before the market closed (Source: Thomson Reuters)
 
On 14 August 2019, at the time of writing (before the market closed, GMT 8:50 am), KIE shares were trading at GBX 143.00, up by 6.31% against the previous day’s closing price. Stock's 52-week High and Low prices are GBX 1,109.47/GBX 58.40. The company's stock beta was -0.57, reflecting a weak and inverse relationship with the benchmark index. Total outstanding market capitalisation was around GBP 218.31 million, with a dividend yield of 37.25%.

Conclusion
To avoid a collapse like that of its competitor, the group had to cut 1,200 jobs in the UK and sell the non-core business to focus on infrastructure, regional construction, utilities and road maintenance. The company looks to reduce its debt through various steps taken, but delivering these would not be easy. Concerns about the company have been fuelled by the overall conditionof the wider outsourcing sector, and its shares have lost around 90% of their value in the past year. The group has a mounting debt pile due to a series of acquisitions it undertook. This strategy has backfired for its competitors. Many analysts believe that the industry is ripe for consolidation now, and investors are still unsure about the position of the company in the future. However, the group has cut its debt levels faster than anticipated and launched the sale of its housebuilding business, indicating that it is making progress with its restructuring initiatives.

Based on the headwinds faced by the group, we have given a "WATCH" recommendation at the current price of GBX 143.00 (as on 14 August 2019), while we look for any upcoming catalysts in the near term.
 
*All forecasted figures and peers have been taken from Thomson Reuters.

Disclaimer

PLEASE BE ADVISED THAT YOUR CONTINUED USE OF THIS SITE OR THE INFORMATION PROVIDED HEREIN SHALL INDICATE YOUR CONSENT AND AGREEMENT TO THESE TERMS.
References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.
This website is a service of Kalkine Limited. Kalkine Limited is a private limited company, incorporated in England and Wales with registration number 07903332.
The article has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. Kalkine is not responsible for material posted on this website and does not guarantee the content, accuracy, or use of the content in this site. No advice or information, whether oral or written, obtained by you from Kalkine or through or from the service shall create any warranty not expressly stated.
Kalkine do not offer financial advice based upon your personal financial situation or goals, and we shall NOT be held liable for any investment or trading losses you may incur by using the opinions expressed in our publications, market updates, news alerts and corporate profiles. Kalkine does not in any way endorse or recommend individuals, products or services that may be discussed on this site. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional licensed financial planner and adviser.