Hi there, great question. You raise some good points. The company has already seen 1. Digital Services tax 2. higher UK corporate tax rate both impact earnings but with minimal fundamental effect on the business dynamics. The impact on dealer customers is one to watch but its been business as usual so far.
In terms of valuation, Auto Trader actually trades at a discount to listed peers with similar dominant positions. Its fwd P/E of 24x vs Scout24 (34x), Copart (32x), Hemnet (37x) and more. I would argue any country specific risks are already baked into the multiple.
Thanks for the question! I think it ultimately deserves a higher multiple.
The company now trades on fwd P/E of 24x and closed the valuation gap to Rightmove since the thesis was written.
Like Rightmove, it has always traded around 20-30x. The discount to other peers such as REA Group, carsales.com and Hemnet probably comes down to the UK market underappreciating the strength and durability of these business models. Valuations are also more reasonable in the UK as a whole. There are specific stock overhangs such as its role in a changing auto landscape and how long they can continue to price dealers who are struggling, both addressed in the note.
As to valuation, what is the appropriate country risk premium to apply to Auto Trader vs listed peers globally?
I understand the UK has elected a hard-left socialist government looking to tax and regulate private sector activities.
Hi there, great question. You raise some good points. The company has already seen 1. Digital Services tax 2. higher UK corporate tax rate both impact earnings but with minimal fundamental effect on the business dynamics. The impact on dealer customers is one to watch but its been business as usual so far.
In terms of valuation, Auto Trader actually trades at a discount to listed peers with similar dominant positions. Its fwd P/E of 24x vs Scout24 (34x), Copart (32x), Hemnet (37x) and more. I would argue any country specific risks are already baked into the multiple.
Hope that helps!
Really interesting and well-written analysis! I do have one question about the valuation:
If the company is dominant and has a moat, why is it trading at a discount to its peers?
Thanks for the question! I think it ultimately deserves a higher multiple.
The company now trades on fwd P/E of 24x and closed the valuation gap to Rightmove since the thesis was written.
Like Rightmove, it has always traded around 20-30x. The discount to other peers such as REA Group, carsales.com and Hemnet probably comes down to the UK market underappreciating the strength and durability of these business models. Valuations are also more reasonable in the UK as a whole. There are specific stock overhangs such as its role in a changing auto landscape and how long they can continue to price dealers who are struggling, both addressed in the note.