Carsales.com Limited (ASX: CAR), an online automotive advertising company announced on 18 December 2018, that it will try to identify a non-cash impairment charge against the carrying value of its 50.1% investment in Stratton worth $48 million. Based on the financial report of FY2018, there are certain external factors as well as ASIC legislative changes on car financing that will hurt the valuation of the Stratton Finance cash-generating unit. The management highlighted this in November 2018.
The external factors which have impacted Stratton include the delay in the realization of operational benefits. It resulted in yield reductions. However, the total finance contract volume of Stratton remains higher for the past five months as per the comparative study based on the corresponding prior period based on the existing marketing conditions.
The company also highlights that these anticipated non-cash impairment charge needed to be mentioned as an adjustment in the financial statement so that Carsales do not face any difficulties while funding covenants or the assessment of interim or final dividend in FY2019. Car sales expect that adjustments of around $1 million will be in the form of non-cash impairment charges from the net profit of the company.
Despite all these adjustments, the company still believes that the finance market will continue to support its core business for a more extended period. Further, the company will also continue to evolve new products and operating models to leverage opportunities from the finance market.
The official listing date of CAR is 10 September 2009, where we see the performance of the company as 218.87%. Its five years performance was 19.59%. However, for the past one year, the performance of the company was -22.44%.
For the financial year ending on 30 June 2018, the company generated revenue from the ordinary activities worth $444.009 million which is up by 19.32% as compared to the previous corresponding year. The company made a net profit of $184.843 million which is up by 68.84% as compared to the corresponding prior period. Also, the net profit after tax is attributable to the members of the company. The interim dividend declared for FY2018 was 20.5 cents, and the final dividend was 23.7 cents which are 100% franked.
The balance sheet of CAR highlights a net asset base of $335.821 million. It indicates that the company can meet its long-term obligations. However, the total current asset of the company is much below its total current liabilities which suggests that the company is facing challenges in meeting its short-term obligations as well as its working capital requirements. The total shareholder’s equity is worth $335.821 million.
By the end of the FY2018, the net cash and cash equivalent available with the company was $65.061 million.
After the announcement, there was an impact seen on the share price of the company. With the market open on 18 December 2018, the opening price of the share was A$11.550 which tumbled by 1.404% and is currently trading at A$11.585 (AEST: 1:51 pm, 18 December 2018) with the stock holding a market capitalization of A$2.86 billion and PE ratio 15.40x.