Sometimes it’s hard to work out the thinking of Australian investors.
Yesterday the country’s biggest car dealer Eagers Automotive revealed a further upgrade for its June 30 interim results from the upgrade issued on May 18.
When the May 18 update was issued the shares were trading at $11.50 – they then slid to a low of $8.72 in mid-June for no real reason except investors went defensive and – fearing a recession, high inflation and rising rates – sold off shares, even those with clear earnings growth.
Those factors haven’t gone away and since that most recent low on June 17, the shares recovered to $10.56 at Monday’s close, perhaps as investors realised the company’s growing dominance of the Australia car selling sector would mean greater benefits accruing from its spread of operations and lower costs.
Yesterday with the further upgrade to half year earnings issued, the shares rose more than 2% to $10.81 in a market that was solid for most of the session before a late fade after Asian markets continued to weaken ahead of the release of the latest US consumer price inflation data, as well as continuing stress from new Covid infections in China.
The Eagers update yesterday strongly suggests that the company had ridden out the June 30 half year sales fall of 5.2% to 537,858 and the near 10% slide in June sales from a year to just over 97,000 from 110,000.
That is also despite the continuing supply constraints on new car deliveries from computer chip and other shortages and the continuing impact of Covid on output from major manufacturing plants around the world.
Eagers now expects its interim result to exceed the interim guidance provided back in mid-May with net profit before tax (NPAT) of $246 million expected for the six months to June 30, versus the previously forecast NPAT of between $225 million and $240 million.
Underlying operating profit before tax of $195 million is up from the forecast range of between $183 million and $189 million.
Eagers management said the improved outlook for the half year was due to underlying strength of the continuing business (it sold a big Sydney dealer in the half), the continued growth of its new car order bank and the benefits of the group’s cost cutting.
The sale of Sydney-based Bill Buckle Auto Group delivered cash proceeds of $88 million and an estimated profit before tax of $48 million which will be included in the statutory profit before and after tax but not in the underlying profit before tax.
The cash from the sale will boost available liquidity to $843 million and net corporate debt of $13 million at June 30.
Given that the company is planning an on-market of around $250 million or 10% of its issued capital.
But given that the shortage of computer bits and new vehicles will eventually ease, you do have to wonder how long Eagers can continue to report strong earnings.
