Auto Trader Share News (AUTO)

(Alliance News) - Auto Trader Group PLC on Thursday reported a double-digit rise in annual revenue and only a slight dip in profit, despite ongoing challenges within the wider car industry.

"Auto Trader has proven its ability to attract and support a growing community of retailers, solidifying its position as a trusted and successful player in the market for the following year to come," said Neil Shag, director of content and strategy at Edison Group.

The Manchester-based digital automotive marketplace said revenue in the financial year ended March 31 climbed 16% year-on-year to GBP500.2 million from GBP432.7 million.

The figure came in just ahead of company-compiled analyst consensus of GBP499.9 million. It was driven by Auto Trade revenue, which rose 9%, and also benefitted from GBP27.2 million from Autorama - a UK-based digital leasing platform focused on new vehicles the firm acquired last June.

Less positively, pretax profit fell 2.5% to GBP293.6 million from GBP301.0 million.

Operating profit fell 8.6% to GBP277.6 million from GBP303.6 million, thanks to a sharp increase in operating costs, which climbed 71% to GBP225.1 million - though these were mostly related to the Autorama acquisition. The figure still came in a touch above consensus of GBP275.1 million, however.

AJ Bell's Russ Mould was impressed that Auto Trader was "still accelerating" despite car listings dropping amid a shortage of new cars. For Mould, this was due to the company's website being one of the most visited by prospective car buyers and thus the most compelling for car retailers, as well as its upselling abilities and increasing prices.

"Its ability to do so is impressive but you feel there will come a point at which it squeezes clients too much and subscriptions start to drop off. Auto Trader’s job is to work out where that breaking point lies," Mould cautioned.

Richard Hunter, head of markets at interactive investor, argued that the "constrained" new and 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.

"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," Hunter said.

For Charlie Huggins, manager of the Quality Shares portfolio at Wealth Club, the "only fly in the ointment" was the loss at Autorama, Auto Trader's recently acquired vehicle leasing business.

Huggins noted that the business is making annualised operating losses of GBP15 million and said that shareholders will want to see that loss "significantly" reduced 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," the Wealth Club portfolio manager explained.

"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."

Auto Trader finished 3.1% lower at 610.69 pence on Thursday in London, one of the worst performers in the FTSE 100. The stock is 3.6% higher over the past 12 months, however.

By Heather Rydings, Alliance News senior economics reporter

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