Higher Finance Costs Dent Eagers Automotive’s (ASX: APE) Bottomline in H1FY24. Are bad days over for the company?

Highlights

• In 1HFY24, APE’s revenue grew by 13.5% YoY to AUD 5,464.2 million, driven by organic, greenfield, and acquisition contributions
• APE recorded12% YoY decline in underlying operating PBT due to higher finance costs from increased inventory and interest rates
• The company is likely to gain from expected RBA rate cuts and falling inflation (CPI at 2.7% in August 2024)
• FY24 revenue growth expected through organic initiatives, retail expansion, and continuous demand for electric and hybrid vehicles.

Eagers Automotive Limited (ASX:APE) is an ASX-listed company which sells new and used motor vehicles, and is also engaged in the distribution and sale of accessories, parts and car care products. Additionally, APE services and repairs vehicles, offers extended warranties and the ownership of investments and property.

APE is expected to benefit from the expected rate cut from RBA and falling CPI inflation.  The data released by the Australian Bureau of Statistics (ABS) on 25 September 2024 suggests that Australia’s monthly CPI indicator for the 12 months to August 2024 increased by 2.7%, down from a 3.5% increase in July. Notably, the CPI reading for August 2024 is the lowest since August 2021. 

Given that inflation is gradually falling to the target level of RBA and the US Federal Reserve has already slashed interest rates by 50 basis points earlier this month and expected to reduce rates by another 50 basis points by the end of this year, a rate cut from RBA is just a matter of time.

APE Latest Earnings Report

In the first half of the financial year 2024 (1HFY24), the company recorded 13.5% YoY rise in its revenue from operations to AUD 5,464.2 million, driven by balanced contribution across organic, greenfield and acquisitions. The period saw 4.6% YoY jump in underlying EBITDA to AUD 265.9 million, underpinned by the improved performance from LFL business and disciplined cost management. Meanwhile, underlying operating PBT dropped by 12% YoY due to finance costs linked with higher inventory and interest rates.

Outlook

In FY24, the company expects to deliver full year revenue growth on the back of organic, greenfield and acquisition initiatives. Moreover, recovery is expected in retail joint venture by normalisation of inventory levels, continuous demand for affordable battery electric and plug-in hybrid vehicles and footprint expansion through retail partners. The focus is on enhancing performance from acquisitions by ongoing optimisation and integration.

Share performance of APE

APE shares closed 0.36% lower at AUD 10.90 apiece on 30 September 2024. In the last one year, APE’s share price dropped by almost 21.61%, while in the last three months, it has increased by almost 4.60%.

52-week high of APE is AUD 15.27, recorded on 20 December 2023, and 52-week low is AUD 9.78, recorded on 8 August 2024.

APE Daily Technical Chart, Source: REFINITIV

Note 1: Past performance is neither an Indicator nor a guarantee of future performance.

Note 2: The reference date for all price data, and currency, is 30 September 2024. The reference data in this report has been partly sourced from REFINITIV.

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