A.P. Eagers Limited (APE) is an automotive retail group focusing on owning and operating motor vehicle dealerships which provide full facilities covering new motor vehicle sales, used motor vehicle sales, service, spare parts and the facilitation of allied consumer finance. APE's main operations are in South East QLD, Adelaide, Darwin, Melbourne, Sydney and the Newcastle/Hunter Valley region of New South Wales.
What a company - and I only just realised with no commentary at all! Thought I would say something to acknowledge 100 anniversary.
There aren't many companies listed on the ASX that are as old as APE - it is celebrating its 100th year this year, which is nearly as old as the industry itself! It listed in 1957 and has paid a dividend every year since.
In March it reported a 38% increase in NPAT to $55m and EPS of 33.2c. 25% increase in dividend, which is the 11th consecutive year of increases. Unlike many other retailers, it has been relatively immune to the downturn in consumer spending as the high Australian dollar has made new cars the most affordable in 40 years.
At $4.91 with 15x P/E the company is looking fully valued but certainly not overvalued although one wonders where their growth can keep coming from.
But management is clearly very astute - they pulled off a $140m raid on fellow car retailer AHE which is now worth $200m less than a year later.
Of course, I bought and sold this twice for small profits without hanging on for the SP run something I seem to be very good at doing...
This company is a bit of a mystery to me - I cannot really see a competitive advantage at all and the metrics seem to back this up (in the last two years there has been ROIC of 11-12% and before that it was under 10% for 2008-10). Margins are low.
They seem intent on ramping up their acqusitions funded by a mix of debt and equity in the last 10 years. And this makes sense as organic growth from car dealerships and after sales services is traditionally limited. It's not a scalable business, it's about owning the most turf to gain market share and to do that you need to keep buying new assets. Working capital costs are also very high as funds as tied up for long periods of time.
If you look at the 20 year chart there seems to have been a serious re-rating of this stock post-GFC - there has been a big spike in the last two years especially. Earnings growth has been high in these years too.
I am aware of Hesking's comments regarding the dollar and the stellar performance of car sales data over this period. I'm also aware that they have been expanding their ownership of dealerships pretty quickly.
EBIT from continuing operations for the 2013 FY will most likely come in at around $110m (based on their market guidance of 7.5% profit increase in June).
EV = $775m (market cap) + $520 debt (factoring in the acquisitions this half) = $1.3B
That's an EBIT / EV of 12! Is the current growth sustainable? How close are we to the top of the car industry cycle? What effect will the falling AUD have?
It looks pretty pricey to me - unless there is improved ROIC over time, this business needs a lot of capital to grow.
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