AUTO TRADER (AUTO) 434.5P
Auto Trader’s share price was hit in October when rival business Motors.co.uk was bought by Ebay and investors worried the latter would become a much stronger player in the car market. Fortunately Auto Trader’s half year results on 8 November helped to win back investor interest with strong numbers including pre-tax profit up 9% to £114.5m.
We continue to rate the business highly and so does Mercantile (MRC) fund manager Guy Anderson who sees the firm as ‘a long-term compounder’ for his investment trust portfolio.
He says Auto Trader is ‘clearly a category killer and a market leader by a significant margin’.
Providing an online market place for car retailing, Auto Trader is ‘focused on used car transactions, has excellent pricing power, very high operating margins and generates a lot of cash it can return to shareholders,’ adds Anderson.
Investors need to keep a close eye on its average revenue per retailer and whether this metric comes under pressure in the wake of the more competitive environment.