Manchester-based FTSE 100 firm Auto Trader Group plc reported that its revenue grew 16% to £500.2 million in the year ended March 31, 2023, despite “historically low levels of vehicle supply.”
Auto Trader said its profit before tax slipped 2% to £293.6 million, which included a £19.1 million profit on disposal of Webzone Limited in October 2022.
The Manchester firm said it returned £225 million to shareholders (2022: £237.1 million) through £147.3 million of share buybacks and dividends of £77.7 million.
Auto Trader is proposing a final dividend of 5.6p per share, giving total dividends of 8.4p per share for the year (2022: 8.2 pence per share).
Auto Trader also announced that Matt Davies will be appointed to its board as non-executive director, chair designate and as a member of the nomination committee. Ed Williams will come to the end of his third three-year term as chair in 2024.
“Matt will join the board with effect from 1 July 2023 and will succeed Ed Williams as chair of the board and nomination committee at the conclusion of the company’s Annual General Meeting on 14 September 2023, subject to shareholder approval …” said the firm.
“Matt is an experienced chair, board member and executive, having held roles as CEO of Pets at Home, Halfords and Tesco UK&ROI.
“Matt is currently chair at Greggs plc where he was appointed in August 2022, and was formerly the chair of N Brown plc and a non-executive director of Dunelm Group plc. He is chair of privately owned businesses Hobbycraft and Travel Counsellors.”
Auto Trader Group CEO Nathan Coe said: “This year marks another strong financial and operational performance for Auto Trader.
“Given the challenging economic backdrop and historically low levels of vehicle supply, these results are a credit to our people and the close partnerships we’ve developed with our customers.
“The prospects for our marketplace are as strong as they have ever been, underpinned by the significant number of car buyers and retailers using Auto Trader.
“We have also made good progress on improving the new and used car buying experience by moving more of the journey online, on Auto Trader.
“As a result, despite continued economic uncertainty and automotive industry changes we feel confident about the year ahead.”
In its outlook, Auto Trader said: “The new financial year has started well and the board is therefore confident of meeting its growth expectations for the year.
“We expect another good year of retailer revenue growth, by far the largest part of our Auto Trader business.
“This will come from a similar ARPR growth rate to that achieved in financial year 2023. We expect the product lever to be consistent with the £137 achieved last year and the price lever to be slightly higher than last year’s £90.
“The stock lever is likely to remain flat. We anticipate a slight decline in retailer numbers, mostly due to the full year impact of the disposal of Webzone Limited.
“The other revenue areas within the main Auto Trader business are likely to perform within a range of flat to low single digit growth.
“Over time we aim to grow share in the new car leasing market through our new Autorama segment. Our short-term focus is on significantly reducing the current annualised operating losses of £15 million through deeper integration with Auto Trader and being disciplined on costs.
“Group central costs, which are non-cash and relate to the acquisition of Autorama, will be c.£18 million for the year.
“Auto Trader operating profit margins should be consistent year-on-year at 70%, despite continued investment in product development and inflationary pressures. Group margins are expected to increase year-on-year.
“Our capital policy remains unchanged, with the majority of surplus cash generated by the business being returned to shareholders through dividends and share buybacks.”
REACTION:
Richard Hunter, Head of Markets at Interactive Investor: “Auto Trader’s dominance in its market continues to drive growth, despite the ongoing challenges within the wider car industry.
“An increase in operating costs and the acquisition of Autorama, aimed at increasing its foothold in the new car leasing market, both muddied the water and resulted in a net debt position at the end of the year. Pre-tax profit of £293.6 million compared to £301 million the year previous, although the number was comfortably ahead of the expected £272 million.
“Revenues of £500.2 million were a shade above estimates, and 16% ahead of the corresponding period last year, with Auto Trader continuing to pull different levers in order to wring additional sales against a challenging backdrop. In the overall UK car market, while new car registrations were ahead by 3% year-on-year, they remain down by 19% compared to pre-pandemic levels, largely due to ongoing supply chain issues.
“In some ways, the constrained new and indeed used car market supply has played into the group’s hands, with cars selling faster than at any time over recent years. These factors combined to reduce the average number of cars listed by the group by 14%, but not at the expense of its income from retailers, which are something of a lifeblood to the business. Indeed, the average revenue per retailer increased by 10%, while the overall number of forecourt and website visits are both greater than those prior to the pandemic.
“Auto Trader has also tweaked its offering and following a redesign is now providing a suite of options which are higher yielding. These revised packages, which include its Enhanced, Super and Ultra offerings, are already gaining traction and have not destabilised the group’s trading demand. The company estimates that 75% of minutes spent on automotive classified sites are with Auto Trader, and that it remains seven times larger than its nearest competitor.
“This also reflects an evolving landscape where car buying is increasingly conducted online. Auto Trader recognises that the need for physical showrooms will retain some attraction for several years to come, but the shift towards online will also help fend off some emerging competition as the likes of Cinch and Cazoo ramp up their presence, mainly through advertising. In addition, the digital offering continues to spawn new products such as the ‘Market Extension’ product, which allows retailers to sell stock outside of their local area and thus increasing their own potential market.
“With operating margin maintained at 70%, a share buyback of around £150 million during the period and with a small increase to the dividend which retains a fairly pedestrian yield of 1.3%, the group continues with a conservative approach which includes bearing down on costs.
“The outlook from the company is positive, underpinned by price increases to its customers which it has been able to introduce without any measurable impact on sales. There are of course concerns around the propensity of the end-consumer to be making such big ticket purchases in the current climate, although the current imbalance between supply and demand is, for the moment, masking any precipitous falls.
“In the meantime, Auto Trader continues to keep the competition at bay given the diversity and choice of its offering, and a scale which few competitors can currently match.
“The overarching concerns of a UK economy which has struggled to make any meaningful growth has had some impact on the share price, although a gain of 7% over the last year compares favourably with a decline of 1.2% for the wider FTSE100, with more recent momentum resulting in a spike of 11% over the last six months. Some wariness around the wider car market and indeed economic prospects limit the market consensus on the shares to a cautious buy, although this broadly positive general view reflects the group’s current dominant position and associated prospects.”
Charlie Huggins, Manager of the Quality Shares Portfolio at Wealth Club: “Auto Trader’s core marketplace has once again enjoyed an excellent year, delivering double-digit profit growth even against the backdrop of supply chain challenges in both the used and new car market.
“The only fly in the ointment is the losses at Autorama, the recently acquired vehicle leasing business. This business is making annualised operating losses of £15m. Shareholders will want to see that loss significantly reduce in the year ahead.
“The acquisition of Autorama is part of Auto Trader’s transformation from an advertising platform where consumers go to research used cars, to a fully online marketplace where consumers can go to transact.
“Large scale transitions like this always bring risk. But Auto Trader has a major string to its bow that significantly increases the chance of success – it’s the first place people go to start their car buying journey. And that’s a great position to be in order to facilitate the online transition.
“Nevertheless, it won’t be a quick or easy transition. It takes time for consumers to change their habits, let alone car dealers, many of whom are still stuck in the slow lane when it comes to embracing the shift to online transactions.
“But the rewards if Auto Trader gets it right could be substantial, further entrenching its market position, while opening up new revenue opportunities.”