An increasing order book for
-Eagers Automotive guides to a lower first half profit
-Elevated new car orders despite a supply shortage
-The effect of rising interest rates
-Short and longer-term margins
Brokers have generally set lower target prices for car retail group
Nonetheless, the company's order book has grown a further 25% in the year-to-date. Forward orders are written at full gross profit margins, which prolongs the current supportive conditions, notes broker Moelis.
The market is under-appreciating the value of the order bank, according to Macquarie, which underwrites a significant portion of earnings for the next 12 months.
While guidance for first half profit of between
The semi-conductor chip shortage issues from 2021 have persisted and have been further exacerbated by the
Of course, the current interest rate environment could weigh, though
Valuation
Prior analysis by
Despite this warning, the broker feels the current valuation for Eagers is undemanding and points to other positives including ongoing rationalisation of the property portfolio, increased earnings from easyauto123 (used cars) and additional acquisition opportunities.
Wilsons agrees on valuation, which is one reason for its upgrade its to an Overweight rating from Market-weight. Other reasons include a quality management team looking to optimise the business footprint, grow the exposure to finance and increase used car market share.
The broker, not one of the seven brokers updated daily in the FNArena database, raises its target price to
Margin analysis
The growing order bank provides Jarden, also not one of the seven, with ongoing confidence in stronger margins for longer. Given ongoing delivery delays and no evidence of demand subsiding, the broker upgrades its gross profit margin for FY23.
The analyst believes the strong order book and supply chain headwinds have prevented the new vehicle market from running with the housing market, which should lessen the negative wealth effect should house prices decline due to rising interest rates. The broker lowers its target price to
Credit Suisse agrees that very strong earnings margins achieved in FY21 can be maintained for FY22 and FY23. However, once supply becomes equal to or greater than demand, margin compression is expected by the beginning of FY24 and is forecast to continue into FY25.
Meanwhile,
The broker retains its Buy rating and reduces its target price to
Within the database there are six broker ratings with five Buy (or equivalent) ratings and one Hold and a consensus target price of
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