Next Eagers acquisition could drive near-term earnings forecast upgrade: Bell Potter

While Eagers Automotive’s (ASX: APE) decision to offload Sydney northern beaches dealership Bill Buckle Auto Group (BBAG) for $92m did surprise some analysts, management advised investors’ of plans to redeploy the funds on an acquisition that better aligns with the company’s Next100 strategy.

“The sale proceeds will provide Eagers Automotive with additional capacity to invest in organic growth and pursue identified strategic acquisition opportunities’’ the company told the ASX.

One possible option for the proceeds of BBAG, speculated Bell Potter could be the decision to up-scale in the company’s fixed-price used-vehicle business easyauto123.

Growth-by-acquisition

But a more likely option mooted by Bell Potter in a recent client note is for Eagers to continue its growth-by-acquisition strategy.

After assessing what BBAG lacked, Bell Potter suspects Eagers will be looking to acquire conveniently located sites, greater used car sales/inventory and/or more potential for expansion or productivity improvements.

While Bell Potter maintains a “buy” rating on Eagers with the price target dropping  3% to $16.75 – the broker suspects the next acquisition/s can provide a near-term driver of an earnings forecasts upgrade.

Fundamentals

Eagers share price has lost some ground since announcing a record result for FY21 on 24 February. Based on underlying demand for vehicles and a check on operational expenses, The company delivered a record full year statutory profit after tax of $330.7m, up 112% year-on-year.

The company paid a fully franked final dividend of 42.5 cents per share, up 70% year on year, and ended the year with a cash position of $197.6m.

In addition to the company’s $169m worth of property in the full year period, Eagers also acquired Toowoomba Ford and franchises in Cardiff and Maitland.

The auto retailer also invested in new retail formats including AutoMall West at Indooroopilly Shopping Centre in Brisbane.

Eagers share price movement over 12 months.