BUY HOLD SELL – Autosports Group (ASX: ASG)
Autosports Group (ASX: ASG) is best known for dealing in the luxury car market, representing brands like Aston Martin, Bentley, Lamborghini, Maserati, McLaren and Rolls-Royce. It has more than 40 retail businesses throughout Sydney, Melbourne, Brisbane and the Gold Coast. The new vehicle segment of the business made up the bulk of its revenues in the first half of 2021, contributing ~62%. Used cars made up ~23% and the parts and servicing arm a small but not insignificant ~11%. Autosports group has seen its share price rise ~120% over the year, buoyed in part by a robust car market. New vehicle sales totalled 100,809 in May, up 68% from a year ago – the highest number of sales for the month of May in four years, according to FCAI. Looking at those results in the context of 2019, which takes out some of the ‘noise’ from COVID, sales were up 8.9%. A result that feeds directly into AGS’s coffers with the business accounting for ~2% of the entire new vehicle market in Australia. What is more engaging and relevant to ASG is the number of new luxury vehicles being sold, with sales numbers recovering from a six-year low in October 2020 to hit a 31- month high in May. It is not a surprising statistic given many households’ and businesses’ balance sheets are in “better shape” than before the pandemic. The wealth effect a convenient reason for the uptick in Porsche pilots, with economic theory suggesting people spend more as the value of their assets rise. Given the property market is booming and the ASX 200 is resetting record highs, it’s a reasonable conclusion to draw. The fact that people haven’t been able to spend money on overseas holidays and a lot of other things during lockdown probably also helps. The RBA’s upgraded economic outlook adds weight to the argument that favourable economic times are likely to persist. How much of that ASG will capture is another question entirely but its outlook and the current trend in the automotive sector points to upside risk. Half year results in February didn’t sit well with the market, the stock fell 7% on the day as profit and revenue numbers both came in short of expectations. A 2c dividend was declared. Management comments highlighted solid trading into the new year but optimism was drowned out by calls revenue growth would be constrained by new vehicle supply. To soften the blow, the board said that margin improvement was expected to flow from supply limitations. A catch-22 situation. A favourable environment for acquisitions was also alluded to, ASG naming the fragmented automotive market from a franchise perspective as an opportunity. Main Observations
- ASG sits on a modest ROE of 10.9%, forecasts see that number easing to 8.9% in FY23.
- EPS growth is anticipated to outpace revenue growth this year. EPS growth is then expected to take a breather but remain around 20c in the following periods.
- A PE of 12.1x is not what you’d call expensive, peers in AMA and APE sit on 30.4x and 18.1x respectively.
- A gross yield of 3.5% is a touch below the market average, APE has a gross yield of 4.8%.
- Of the brokers surveyed by Thomson Reuters, 100% have a BUY or STRONG BUY rating.
- ASG is trading at a 4% discount to the average broker target price and a 33% premium to intrinsic value.