Credit Suisse describes Carsales’ acquisition of the remaining 51% interest in Trader Interactive as paying a premium, but finds it justifiable given it anticipates the purchase will deliver strong earnings growth over a number of years.
The broker notes the company undertook a $1.2bn equity raising to fully fund the acquisition, and while a higher level of debt could have improved the accretion metrics the raise left the company at a comfortable gearing level.
The Outperform rating is retained and the target price decreases to $24.00 from $25.80, largely as a result of dilution from equity raising.
Sector: Software & Services.
Target price is $24.00.Current Price is $20.76. Difference: $3.24 – (brackets indicate current price is over target). If CAR meets the Credit Suisse target it will return approximately 13% (excluding dividends, fees and charges – negative figures indicate an expected loss).