Auto Trader: FTSE 100 giant faces double City broker downgrade
Forecasts for FTSE 100 giant Auto Trader have been downgraded by two City brokers, after the firm’s disappointing financial results caused analysts to doubt predictions of strong growth.
Peel Hunt slashed annual revenue expectations for the group by four per cent, decreasing its earnings per share forecast by three per cent and profit before tax by three per cent.
“Fast selling speed in the used car market continues to impact the company, and will likely weigh on growth in the near term,” said Peel Hunt analysts Jessica Pol and Melanie Yang.
The broker now expects Auto Trader’s average revenue per retailer growth to average only five per cent, compared to its previous forecast of nine per cent.
Falling forecasts also caused Peel Hunt to downgrade net cash forecasts, as all the FTSE 100 company’s free cash flow is expected to dish out all free cash flow to its shareholders through dividends and share buybacks.
Meanwhile, Panmure Liberum analysts downgraded Auto Trader’s stock price target from 840p to 820p, matching Peel Hunt’s target while keeping its rating for the group’s shares as a Hold.
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Auto Trader facing ‘headwinds to non-core revenue lines’
Analysts Sean Kealy and Johnathan Barrett flagged “headwinds to non-core revenue lines”, but added that the used car market was slowly developing in the group’s favour.
“The positive news is that one to three year old cars are growing in volume and will soon enter the three to four year old car category – which is the most popular age group on dealer forecourts,” said the analysts.
Auto Trader’s stock price dropped more than 11 per cent last Thursday after its full-year results revealed only a five per cent increase in average revenue per retailer during the last financial year.
“Thanks to limited supply and exceptionally strong demand, car tyres are barely touching the forecourt before they are snapped up and this means there is less need for retailers to buy advertising slots from Auto Trader,” explained AJ Bell investment director Russ Mould.
“There has also been some disquiet from independent garages online who feel they are being squeezed a little too hard by the company. Although whether this will translate into lost business is another question.”