UBS ups Auto Trader to 'neutral' on valuation grounds
UBS upgraded Auto Trader to 'neutral' from 'sell' on valuation grounds, saying the share price now implies revenue growth in line with its forecasts.
It noted that since the company's full-year results on 8 June, the shares have underperformed the FTSE 100 by 13%.
"While we did cut earnings per share estimates slightly (1-2%) post results, we believe the sell-off is due to concerns over UK consumer, Amazon and a drop in used car transactions.
"Our initial 'sell' call was based on our view that expectations for 7-8% 2017-26 revenue compound annual growth rate were too high. With the current share price now implying circa 5% 2017-26 revenue CAGR, we think this revenue growth is achievable and therefore we upgrade."
UBS said it reckons Auto Trader can achieve mid-single digit revenue growth over the medium term, by implementing 3-4% annual price increases, driving penetration of its iControl tool and growing its display advertising revenues by monetising mobile inventory.
"While the number of forecourts may continue to decline, we believe this will be offset by a shift of stock to larger players," it said, adding that the company's revenues are generated on a per car basis.
At 1250 BST, the shares were up 3.4% to 371.10p.