Auto Trader motors on and Go-Ahead surprises

Thursday, June 6, 2019 - 09:48

“A 0.4% rise in the FTSE 100 should bring a sigh of relief from investors as markets find a sense of stability following a recent bout of weakness,” says Russ Mould, Investment Director at AJ Bell.

“Heading the blue chip risers was Aviva which issued a strategic update outlining plans to make the business simpler, more competitive and more commercial.

“Many of the biggest fallers on the FTSE 100 were stocks trading without the right to their latest dividend including Taylor Wimpey, Sainsbury’s and Associated British Foods.

“Stocks across other markets in Europe were also trading higher including a 0.3% advance in Germany’s DAX index".

Auto Trader

“The car industry might be stalling, but vehicle listings website Auto Trader continues to motor along nicely.

“Auto Trader’s website is the one most visited by prospective car buyers because it has the most listings. Car retailers are therefore compelled to use its products, reinforcing its leading position.

“This helps explain the company’s ability to accelerate its average revenue per retailer by 9% in the 12 months to 31 March 2019.

“Earnings expansion in the medium-term is likely to be reliant on achieving further improvements here, given the volume of the cars on the site is expected to dip slightly.

“Auto Trader does expect growth on this metric going forward, although in a sign of more difficult market conditions the company indicates it may struggle to squeeze more out of car sellers at the ‘exceptional levels’ seen in the past financial year.

“In fairness it is not a case of Auto Trader simply charging a higher price for the same thing but rather of upselling retailers to a wider range of products and services. This could still be a tough ask given the challenges facing the sector.

“The company also has to contend with a change of drivers as CEO Trevor Mather hands over the keys to his finance chief, Nathan Coe at the end of the current financial year.

“Assuming the company does not hit any major speed bumps between now and March 2020, Mather can look back on his time at the wheel with pride, steering the company through a successful IPO and a great start to life as a public company.”

Go-Ahead Group

“Public transport operators are rarely in people’s good books as travellers moan about delays and cancellations. Investors in these stocks have also suffered from a host of problems around rail franchises and volatile earnings growth.

“It is therefore a pleasant surprise to see Go-Ahead issue a very bullish trading update with revenue growth in all three of its business divisions. Punctuality looks good, passenger satisfaction is at an all-time high in regional buses, and earnings expectations have been raised in parts of its bus operations.

“Interestingly service innovation appears to be paying off. Its on-demand ride-sharing minibus service has now made more than 130,000 journeys since launch a year ago.

“On one hand this sort of innovation is necessary for Go-Ahead to compete against the likes of Uber and other ride-hailing start-ups; on the other it is giving customers something that makes their lives easier which has to be good for its business longer-term.”

These articles are for information purposes only and are not a personal recommendation or advice.

The daily market update is written by Russ Mould, AJ Bell’s Investment Director and his team. The article highlights the movement in the main index, winners and losers on the day and any macro-economic announcements.