ii view: dominant UK player Auto Trader now using AI

First-half results to 30 September

• Revenue up 8% to £302.5 million
• Earnings per share (EPS) up 11% to 15.56p
• Interim dividend of 3.5p, up from 3.2p per share last year
• Share buybacks of £65 million year-to-date
• Net cash held of £15 million, up from net debt of £27 million a year ago

Chief executive Nathan Coe said:

"Our strong results for the first half of this year reflect the record numbers of customers choosing to partner with us to retail vehicles and drive the performance of their businesses."

"We are confident in the outlook for the business given our strong market position, and the opportunity to use our unique data, technology and AI capabilities to improve the way vehicles are retailed in the UK."

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ii round-up:

Auto Trader Group (LSE:AUTO) provides an online digital automotive marketplace to both forecourt dealerships and individual consumers. 

It looks to bring together both buyers and sellers of vehicles charging fees to sellers to advertise their product. Both second hand and new vehicles are bought and sold on the platform. Car leasing deals are also available via its Autorama business and under the Vanarama brand. 

Employing over 1,200 people, its website attracts more than 82 million visits each month.

For a round-up of these latest results announced on 7 November, please click here.

ii view:

Coming to the stock market in 2015, group customers now spent around 560 million minutes per month viewing the group’s website. Most of its revenues come from the advertising of vehicles via the almost 14,000 forecourt dealerships selling their vehicles via the group’s website. Both second hand and new vehicles are bought and sold on its platform with vehicles to lease also available under the group’s Autorama business and Vanarama brand. Just over 6% of revenues were generated via leasing during this latest period. 

For investors, constrained vehicle supply conditions are resulting in shorter periods of required advertising, hindering revenues. The Financial Conduct Authority’s investigation into motor finance practices now overhangs with an update expected in May. Tech titan Amazon is taking an interest in the UK motoring market, while an estimated future Price Earnings (PE) ratio above the three-year average may suggest the shares are not obviously cheap. 

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To the upside, product innovation includes a ‘Deal Builder’ product, allowing car buyers to value their part exchange vehicle, apply for finance, and reserve a vehicle online – a service it charges dealerships for. A new suite of AI-powered tools designed to improve the automotive experience for consumers and retailers has been launched under its ‘Co-Driver’ initiative. Net debt has been pushed to a net cash position, while shareholder returns include both a dividend payment and a share buyback programme. 

In all, continued innovation and a dominant UK market position are likely to leave existing long-term fans of this FTSE 100 company sitting tight.    

Positives: 

• Strong market position
• Investing in product innovation

Negatives:

• Uncertain economic outlook
• Now paying the UK's digital services tax

The average rating of stock market analysts:

Strong hold