In 2023 the Australian automotive market smashed all-time records for new vehicle sales, with 1,216,780 vehicles delivered during the year, beating the previous highest sales result of 1,189,116, which was achieved in 2017.
Toyota was the top selling car brand with 17.7% of the market while the top selling vehicle was the Ford Ranger (63,356). SUVs and light commercials accounted for 78.4% of sales and comprise all the top 10 vehicles sold in 2023.
Battery electric vehicles accounted for 7.2% of sales, with combined battery electric, plug-in hybrid and hybrid vehicles achieving 196,868 sales, or 16.2% of new vehicle sales.
The automotive market is clearly doing well, in the face of soft consumer demand in a host of other discretionary retail sectors. So, how does that flow into the outlook for the listed automotive retailers? Let’s take a look at these three.
- Eagers Automotive (APE, $13.81)
Market capitalisation: $3.5 billion
12-month total return: 8.9%
3-year total return: 4.1% a year
FY25 estimated yield: 5.4%, fully franked (grossed-up, 7.8%)
FY25 estimated price/earnings (P/E) ratio: 12.7 times earnings
Analysts’ consensus target price: $14.65 (Stock Doctor/Refinitiv, 15 analysts)
The merger between AP Eagers (as it was then known) and Western Australia-based Automotive Holdings in 2019 created Australia’s biggest automotive retail group. The merged group more than 300 car dealership locations, located in every state and territory of Australia, and 13 in New Zealand, as well as 68 new truck and bus dealerships in Australia.
The company sells a diversified portfolio of automotive brands, including all 19 of the top 20 selling car brands in Australia and nine of the top ten selling luxury car brands. In total, it represents 33 car brands and ten truck and bus brands. As well, Eagers’ dealership locations service more than 1 million vehicles across Australia and New Zealand per year. Eagers also has a property portfolio worth almost $600 million.
New cars are 61% of the company’s revenue, followed by parts, service and finance (22%) and used cars (17%).
Eagers Automotive also has the exclusive retail distribution rights in Australia to fast-growing Chinese brand EYD, which has rapidly become the second-biggest selling electric vehicle behind Tesla. Eagers says it is the “largest franchise operator” in the transition to new-energy vehicles; and this is the company’s leading market driver.
More broadly, the company’s new car order bank underwrites deliveries, and remains “materially above pre-pandemic levels,” with more than 12 months of run-off expected even with normalised new car supply.
2023 (Eagers uses the calendar year as its financial year) delivered record revenue for Eagers, of $9.8 billion (up 15.3%) and record ‘underlying’ net profit, of $433.3 million (up 6.9%). But statutory profit fell 7.8%, to $299.1 million.
(Remember, ‘underlying’ profit is the company’s preferred figure, which excludes any one-off costs and gains, such as a “write-down” in the value of, or sale of, a major asset, to give a sense of the ongoing earnings of the business. ‘Statutory’ profit is the “net profit after tax attributable to shareholders,” which the company is required to report by ASX rules: it does include those things.)
Nevertheless, the final dividend came in at 50 cents, up one cent from FY22, which lifted the full-year fully franked dividend to 74 cents, a three-cent improvement on FY22.
The company says its record full-year revenue was driven by “balanced” contributions from organic growth, establishing ‘greenfield’ businesses and integrating acquisitions, all helping APE to leverage the record new car sales.
The analysts that cover Eagers Automotive expect revenue growth of almost 12% this year, and profit growth a bit smaller, at just under 3%. On 12.7 times projected 2024 earnings, it trades reasonably cheaply; and analysts see scope for share price growth. They do expect the dividend to come down a bit this year, to 72.6 cents: but with growth resuming, to 75.3 cents in 2025. The expected fully franked yield of 5.4%, which grosses-up to 7.8% – and if that is borne-out, that starts to push the total return into double figures.
- Peter Warren (PWR, $2.22)
Market capitalisation: $382 million
12-month total return: –12.9%
3-year total return: n/a
FY25 estimated yield: 7.7%, fully franked (grossed-up, 11%)
FY25 estimated price/earnings (P/E) ratio: 8.8 times earnings
Analysts’ consensus target price: $2.88 (Stock Doctor/Refinitiv, eight analysts)
Australia’s second-largest listed vehicle retailer, Peter Warren Automotive, which has been operating in Australia for more than 60 years. The company is a new and used car retailing business with 83 franchise operations across the eastern seaboard, representing car brands like Mercedes-Benz, Jeep, Honda, Toyota, Ford, Suzuki, Kia, Peugeot, Volvo and ŠKODA, among more than 27 vehicle makers across the volume, prestige, and luxury segments.
The business provides the full range of sales and support including parts, service, finance and insurance and aftermarket products; Peter Warren says this full-service offering creates a ‘one-stop’ offering and a superior value proposition for customers. Selling new cars represents 67% of revenue, with used vehicles 14%, parts and accessories 11%, service 5%, and the rest spread between finance and insurance, and aftermarket.
In FY23, Peter Warren reported a 21.1% lift in revenue, to $2.07 billion; but net profit was effectively flat at $56.4 million. The result included about $3.2 million net profit contribution from recent dealership acquisitions, with the core result down about 31% if this were excluded. The company paid a total fully franked dividend of 22 cents a share, in line with FY22.
Then, for the half-year ended December 2023, PWR reported a revenue lift of 20%, to $1.2 billion, but a 28.9% slide in net profit, to $21.4 million; mainly, the company said, on the back of rising interest costs. The interim dividend was 8.5 cents, fully franked, down from 11 cents in the same half in 2022.
Similarly to Eagers Automotive, Peter Warren has a three-pillar strategy of organic growth initiatives; evaluation of acquisition opportunities; and continuing to leverage and evolve its property portfolio.
Peter Warren’s group of analysts expects, on consensus, revenue growth of more than 19% in FY24, but sliding profit. Given that the stock is trading on less than nine times expected FY25 earnings, and that the dividend yield is expected to hold at almost 8% fully franked, there will be investors who are prepared to feel this is cheap – and that on the numbers, Peter Warren looks a more attractive buy than Eagers – especially given where analysts’ consensus sees the target price. But PWR looks a bit more speculative than Eagers.
- MotorCycle Holdings (MTO, $1.50)
Market capitalisation: $111 million
12-month total return: 0.8%
3-year total return: –8.7% a year
FY25 estimated yield: 7.3%, fully franked (grossed-up, 10.5%)
FY25 estimated price/earnings (P/E) ratio: 7.8 times earnings
Analysts’ consensus target price: $1.90 (Stock Doctor/Refinitiv, three analysts)
Australia’s other major listed automotive dealer specialises in motorcycles – and motorcycle sales are not as buoyant as those of four-wheeled vehicles. According to the Federal Chamber of Automotive Industries (FCAI), total motorcycle market sales in 2023 came in at 95,980 on-road and off-road motorcycles, scooters, and off-highway vehicles (OHVs) – a 3.1% decline on the 2022 figure (despite a stellar performance from the scooter segment, which was up 15.4% year-on-year, with a total of 6,135 sales).
Annual motorcycle sales are still well down on the peak of 123,530 in 2021 amidst COVID-19 lockdowns, they appear to have stabilised to a level in line with pre-pandemic numbers (2019) – a year in which 89,199 motorcycles were sold.
That would imply better times ahead for Brisbane-based motorcycle retailer MotorCycle Holdings, which is Australia’s largest motorcycle dealership operator, with franchises across Queensland, New South Wales, Australian Capital Territory and Melbourne. It sells new and used motorcycles, accessories and parts, finance, insurance and warranty products, service and repairs, and also offers a rider training school.
MTO is the market leader, selling about 14% of new motorcycle sales within Australia. That market share tells you that the industry remains highly fragmented; a key part of MTO’s strategy is to continue to consolidate dealerships and expand distribution opportunities.
In FY23, MTO reported revenue that rose 27%, to $579.2 million, while net profit was essentially flat at $23 million. Earnings per share (EPS) fell 5 cents (13.1%), to 33 cents, and the profit margin slipped more than one percentage point, from 5.1% to 4.0%. But it did lift its market share from 12% to 14%, a rise of 17%.
The company got a good contribution from Mojo Group, which it bought for $60 million in September 2022. Mojo imports and distributes genuine spare parts and accessories for motorcycles, scooters, ATVs, electric motorcycles in Australia and New Zealand through a network of 150 dealers. What particularly helped the MTO result was Mojo’s exposure to the agricultural industry, through its all-terrain vehicle (ATV) sales, at a time when discretionary spending on motorcycles was more subdued. While several other ATV manufacturers withdrew from the Australian market due to new standards applied by the Australian government in October 2019. However, Mojo remained committed to supplying ATVs into the market.
MTO had a bad year in 2023, with the share price sliding 54%. In December, MotorCycle Holdings shares were hammered after a profit warning, in which the company revealed first-half earnings could slump more than 20%.
Earlier this year, that warning more than came true, with first half underlying net profit down 37%, to $6.6 million, despite a revenue rise of 6%, to $293.4 million. The softer result was driven by higher-than-expected operating costs growth (operating spending jumped 11.5% on the previous half) and a slowing top-line outcome (revenue fell 3% on the previous half). New retail motorcycle sales increased 8%, to 7,652 units, while used retail motorcycle unit sales decreased 8% to 5,039 units. And the company said it expects consumer pressures (cost of living/interest rate impacts) will continue to impact trading in the second half.
Overall, analysts still expect low-single-digit revenue growth in FY24 and FY25, but a profit slide of somewhere around 38% this year – and then a rise off that lower base, of about 8.5%, in FY25. But the full-year fully franked dividend is likely to be less than half the FY22 one, at 9 cents, rising to 11 cents in FY25. That places the stock on attractive dividend yields – if those dividends come through.
On consensus, MTO’s small analyst cohort sees potential upside of 26.6% – but as with Peter Warren, that has to be considered a speculative target, given potential ongoing consumer weakness.
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