“The Australian ‘confession season’ continues, with companies Sonic Healthcare (SHL), Telstra (TLS), James Hardie (JHX), The Reject Shop (TRS), Nufarm (NUF) and Eagers Automotive (APE) issuing disappointing guidance,” Raymond said.
“We think weakness creates an opportunity to invest in quality companies, like APE.
“APE provided first half 2024 earnings guidance, expecting net profit before tax (NPBT) to be down approximately 15% on pcp.
“The group is on track to deliver more than A$11 billion in total revenue (>11% on the pcp).
“However, a number of negative margin impacts (cyclical and temporary) have impacted the first half of 2024.
“APE noted: pockets of geographic weakness (in particular New Zealand); materially reduced profitability in the Retail JV (excess inventory clearance); cycling a lower pcp cost base; limited profit contribution from recent acquisitions; and broader market (for example, softening consumer demand, increased competitive environment).
“Positives are 1. strong cost control; 2. a likely Retail JV recovery in 2H2024; and 3. a likely recovery of used car segment.
“The market has been expecting a weak softer consumer condition.
“This condition is likely to persist until an RBA rate cut.
“However, we think APE’s 10x PE multiple reflects this.
“Plenty of structural growth initiatives are in play across consolidation; EV transition; sales channel optimisation; used vehicles; and new markets (offshore),” Raymond said.
Eagers Automotive (APE)
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