One auto stock to buy with potential upside

Highlights 

• Auto Trader Group’s revenue stood at £215.4 million for the six-month period ended 30 September 2021, representing a rise of 82% year-on-year.
• The Group’s board declared an interim dividend of 2.7 pence per share for the half-year ended 30 September 2021.
• The company registered high demand for used cars due to a new car supply shortage.

The shares of Auto Trader Group Plc (LON: AUTO) closed at GBX 708.00, up by 14.16% on Thursday, 11 November 2021.

The shares of the company, which is part of the FTSE 100 Index, returned 23.43% to shareholders in the last one year, and its market capitalisation currently stands at £5,903.47 million.

Financial performance

Auto Trader Group, an online used and new car marketplace based out of the UK reported revenue at £215.4 million for the six-month period ended 30 September 2021, representing a rise of 82% year-on-year from £118.2 million in the comparable period in 2020.

 Its trade revenue was £192.3 million in H1, up by 92% year-on-year from £100.2 million in the previous year. The company reported an operating profit rise of 121% year-on-year to £151.7 million for the half-year period ended 30 September 2021 compared to £68.5 million in the same period the previous year.

Auto Trader Group’s board declared an interim dividend of 2.7 pence per share for six months ended 30 September 2021.

Booming used car demand

Global chip production has been undergoing a slowdown due to the logistics and supply chain difficulties caused due to the pandemic, thereby delaying the production and supply of new cars. Consumers are currently facing long wait times for new car models, thus driving demand for used cars.

Last month, the average used car price increased by 26% year-on-year and the boom in the used car market is expected to continue until June 2022, as new car supply is expected to be slow.

In early 2021, Auto Trader’s profits were impacted as the company offered free listings to customers during lockdowns, which cost the company nearly £5-7 million per month.

The company announced a £183 million share placing in April 2020 and has used the raisings to boost its online offerings. Retail customers can now book cars through the site, and the used car retailer is expected to launch a vehicle finance scheme, post its purchase of the financing platform - AutoConvert.

Auto Trader also registered a huge growth in demand for electric vehicles in the backdrop of rising fuel shortages. However, the company is facing competition from start-ups such as Cinch and Cazoo.

Operational performance

Auto Trader Group’s cross-platform visits rose by 20% year on year to an average of 68.7 million per month from 57.3 million in the same period in 2020. Its cross-platform minutes increased by 14% to 633 million per month from 557 million. Its per month average revenue per retailer stands at £2,199 for the six months ended 30 September 2021, up from the previous year’s £1,206.

The company’s physical car stock on-site declined by 9% to 436,000 compared to 478,000 in the previous year. Its new cars listings also declined to 39,000 from 46,000.