##{"id":58693,"date":"2011-08-18T10:23:11","date_gmt":"2011-08-18T00:23:11","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2011\/08\/18\/market-leadership-a-virtue-for-carsales-com\/"},"modified":"2011-08-18T10:23:11","modified_gmt":"2011-08-18T00:23:11","slug":"market-leadership-a-virtue-for-carsales-com","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2011\/08\/18\/market-leadership-a-virtue-for-carsales-com\/","title":{"rendered":"Market Leadership A Virtue For Carsales.com"},"content":{"rendered":"

\n\t– Full year earnings from carsales.com<\/span> better than expected
\n\t– Company remains well placed to deal with increased competition
\n\t– Forecasts lifted post the result
\n\t– Brokers remain unanimous with Buy ratings<\/strong><\/p>\n

\n\tBy Chris Shaw<\/p>\n

\n\tConsensus forecasts for FY11<\/span> net profit for carsales.com<\/span> ((CRZ<\/span>)) leading into Tuesday's result was around $56.2 million, so the actual result of $58.3 million was well received by the market. The result was an increase of 35% relative to FY10<\/span>.<\/p>\n

\n\tDriving earnings was stronger than expected revenue growth, particularly in the second half of FY11<\/span>. Dealer and data services was also a key area of outperformance<\/span> observes Deutsche Bank, while additional investment into the operating platform was largely responsible for limiting margin expansion through the year.<\/p>\n

\n\tA key feature of the result, according to RBS<\/span> Australia, was while revenue from dealer advertising was up 16% in FY11<\/span>, growth from non-dealer ad spend came in at 38%. This now accounts for 53% of revenue for carsales.com<\/span> and means there is less reliance on dealer advertising as a driver of future revenue growth.<\/p>\n

\n\tThis is a positive in the view of RBS<\/span> as it means the market position of carsales.com<\/span> is strong enough to deal with increased competition such as the joint venture between Carsguide<\/span> and auto dealers.<\/p>\n

\n\tDeutsche Bank makes a similar argument, pointing out innovation in its product offering is allowing carsales.com<\/span> to entrench its leading market position. As an example, Deutsche notes the carsales.com.au<\/span> mobile platform now generates more page impressions that the desktop platforms of all three major competitors combined.<\/p>\n

\n\tThis leading market position makes attracting potential buyers to competing sites increasingly difficult, something Deutsche sees as a positive with respect to market traction for carsales.com<\/span> going forward.<\/p>\n

\n\tOn the back of the better than expected profit result, brokers across the market have lifted earnings forecasts. Increases by BA Merrill Lynch have been modest at 1-2% through FY13<\/span>, while Deutsche has lifted its earnings per share (EPS) estimates by 3% over the same period and Credit Suisse by 3.5-4.5%.<\/p>\n

\n\tUBS has also made minor increases to estimates, lifting revenue forecasts by 1-2% to reflect both FY11<\/span> results and a solid start to FY12<\/span> while offsetting this to some extent with higher depreciation and amortisation<\/span> charges and lower margin expansion assumptions to reflect a higher level of competition.<\/p>\n

\n\tConsensus EPS forecasts according to the FNArena<\/span> database now stand at 28c<\/span> for FY12<\/span> and 31.6c<\/span> for FY13<\/span>, which compares to the 24c<\/span> generated in FY11<\/span>. The changes to earnings estimates have had only a minor impact on price targets, the database showing a consensus target now of $5.48, up from $5.45.<\/p>\n

\n\tWhat hasn't changed are positive views on the stock, the FNArena<\/span> database showing carsales.com<\/span> scores a perfect six-for-six Buy ratings. There are two factors supporting positive ratings, one being a share buyback of up to 10% of issued capital. As RBS<\/span> notes, this should be accretive to EPS by around 4%.<\/p>\n

\n\tThe second positive for carsales.com<\/span> is valuation, as at current levels RBS<\/span> estimates the stock is trading on a lower multiple to online media sector peers. As an example, RBS<\/span> calculates while carsales.com<\/span> is trading on a FY12<\/span> earnings multiple of 16 times, Realestate.com.au<\/span> ((REA)) is trading on a multiple of 19 times for next year. Relative to its historical earnings multiple carsales.com<\/span> also looks attractive according to RBS<\/span>.<\/p>\n

\n\tAn added attraction for BA-ML is the auto classifieds market in general and for used cars in particular is at the more defensive end of advertising, so is more likely to remain resilient even in a tough economic environment.<\/p>\n

\n\tThis suggests little downside share price risk, so supporting BA-ML's Buy rating. As RBS<\/span> also points out, the yield on carsales.com<\/span> of around 5% fully franked for FY12<\/span> is also attractive.<\/p>\n

\n\tCarsales.com<\/span> shares had a trading range over the past 12 months of $3.79 to $5.40. At current levels the stock offers upside of around 15% to the consensus price target in the FNArena<\/span> database.<\/p>\n

\n\t <\/p>\n

\n\tFind out why FNArena<\/span> subscribers like the service so much: "Your Feedback (Thank You)<\/a>" – Warning this story contains unashamedly positive feedback on the service provided.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"