Automotive accessories supplier
-Motor vehicle trends supportive
-Offers exposure to defensive earnings
-Cash flow should fund dividend and capex obligations
Automotive accessories supplier
In FY20 gross profit was up 11.8% while operating earnings (EBITDA) were down -4.1%. While July sales may have been strong, growth rates are expected to ease back, although
Credit Suisse found the results hard to fault, noting demand drivers are intact and this should sustain above-trend sales in FY21. Valuation is now only 7% above levels immediately prior to the sell-off on the outbreak of coronavirus and there is heightened expectations surrounding the amount of private vehicle kilometres being driven over the next two years.
There is no doubt
Citi also conservatively assumes like-for-like sales growth will slow down over the next five months, to 3% and 5% in trade and retail, respectively. This will occur as pent-up demand subsides and Burson cycles promotions.
Consumer expenditure may also be affected by the scaling back of JobKeeper and a slowing in superannuation withdrawals. Nevertheless, should consumers continue to use personal vehicles instead of public transport and delay new vehicle purchases this will line up the skittles for
In the second half, gross margins declined by -111 basis points because of FX headwinds and stock obsolescence. However Citi estimates FY21 gross margins will increase to 47% as private-label penetration expands and the Australian dollar strengthens. One-off costs associated with obsolescence should also disappear.
Growth Targets
The company's 5-year growth targets include a 29% increase in trade stores to 240, commercial vehicle stores up 114% to 90 and Autobahn up 49% to 200.
Morgans expects cash flow should almost fully fund the dividend and capital expenditure obligations in coming years and, while consumer sentiment may be distorted given the extent of the economic stimulus that is occurring, the industry should prove resilient at the very least.
The broker's forecasts require around 7.7% growth in the base business which should be readily achievable. This excludes the benefits of acquisition contributions and any reduction in corporate costs. Morgans also points out
Credit Suisse speculates, even factoring in lower cash flow conversion versus company estimates, around
Citi agrees the valuation is undemanding as
The broker also believes the strong trade momentum during July implies a positive outlook for
FNArena's database has six from six Buy ratings for
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