Auto Trader shares soar on buyback, dividend vow

Shares of Manchester-based Auto Trader Group plc rose about 7% on Thursday after a strong outlook and a promise to resume stock buybacks eclipsed the news that its revenue fell 29% to £262.8 million in the year to March 31 and profit before tax fell 37% to £157.4 million.

On dividends and buybacks, Auto Trader said: “The board has decided to reinstate its capital allocation policy and proposes a final dividend of 5.0 pence per share (2020: no final dividend declared), which is also the total dividend for the full year (2020: 2.4 pence per share).

“Our capital policy remains broadly unchanged: to continue to invest in the business enabling it to grow while paying around one third of net income to shareholders in the form of dividends.

“We aim to return the remaining surplus cash to shareholders through share buy backs, which will recommence shortly.”

In its outlook, Auto Trader said: “Auto Trader has started the new financial year in a strong position as a result of the actions taken in the last year.

“This is reflected in our recent trading performance, a strong pipeline of product innovations and improved relationships with customers.

“In the longer term, we will be beneficiaries of the major changes underway in the car retailing market, where more of the buying journey is moving online.

Despite unusually strong demand and tight supply, COVID-19 is currently having little impact on the financial performance of the business as we start Financial Year 2022.

“However, as seen in other countries, we cannot yet be sure that COVID-19 will not reappear as a significant negative factor in our future performance.

“The following remarks assume no significant restrictions on our retailers’ ability to trade going forward.

In the year ahead, we expect to deliver high single digit growth on FY20 ARPR and Operating profit margins that are in line with FY20 levels, with FY20 being the year ended March 2020.

As we started the year, we successfully executed our annual pricing event in April 2021 including the launch of Retailer Stores, which offers customers their own dedicated, customisable location on Auto Trader.

“Retailer numbers for the year are likely to be in line with FY20 levels and stock is still expected to be a small headwind.

“Consumer Services and Manufacturer & Agency revenue, which make up 14% of group revenue, will recover from FY21 lows, but are unlikely to reach FY20 levels, as sellers favour part-exchange and new car advertising is impacted by semiconductor supply issues.

The board is confident for the future prospects of the business.”

Auto Trader Group CEO Nathan Coe said: There has been a dramatic shift towards buying online which means we now have more buyers than ever turning to Auto Trader to help with their next car purchase, making us even more relevant to retailers and manufacturers.

“This positions us ideally to enable the buying and selling of cars online, which will materially improve the car buying experience and the business of our customers.”

AJ Bell Investment Director Russ Mould said:“The drop in full year profit announced at Auto Trader is firmly in the rearview mirror now as investors focus instead on the buoyant market conditions which are helping to drive a gear change in profitability in the current financial year.

“The profit drop resulted from the discounts and free advertising slots given to clients during the pandemic and this action may well have strengthened and deepened these relationships.

“This is crucial as Auto Trader’s profit growth is heavily reliant on upselling an increasing range of services to its car dealership customer base.

“The company’s dominant market share means it benefits from a network effect – it is the one most visited by prospective car buyers because it has the most listings.

“Car retailers are therefore compelled to use its products, reinforcing its position.

“The company is also working on new innovations like offering guaranteed part-exchange and allowing users to make reservations on vehicles.

“And the current production issues affecting the manufacture of new vehicles mean demand for used cars is very much in the fast lane.

“Limits on the availability of stock are only seen as being a modest speed bump for Auto Trader and CEO Nathan Coe, who took the wheel just as Covid hit, should now have a clearer path to take the business in the direction he wants.”