Spike in used car prices drives Turners to record FY22 earnings

Turners Automotive Group (ASX:TRA) has reported record earnings for the financial year to March 31 with revenue up 15% to $342m; earnings up 11% to $47.7m and profit after tax up 16% to $31.3m. 

The record earnings are borne from Turners' Auto Retail, Finance and Insurance arms which operate in the used car market. 

A shock hike to the price of used cars across Australia and New Zealand during the covid-era has led to a higher demand for car insurance and maintenance as purchasers of used cars invest more money into maintaining the assets (or buy insurance,) as simply buying new cars at this time has become more impactful on household bottom lines. 

(Source: Turners Automotive) A chart showing how Covid-19 impacted Turners' sales

Shortage of used cars and higher prices boost performance 

The company also notes that the supply of used cars in the market remains constrained. 

But, Turners’ Automotive latest earnings report is a mixed story, reflecting two different stories: some consumers are holding onto cars, leading to a supply shortage; and because of this, there is a technically higher demand. 

This is further evidenced by Turner's increased market share in the Auto Retail division with the company reporting a "good pipeline of new branches building." 

The company's credit management business sees debt load returning slowly with company mangement noting the FY23 commercial environment "should be more productive." 

Meanwhile, company's employee engagement is reported at a record high as retention and recruitment dynamics continue to change around the world (read: The Great Resignation.) 

Turners not free from the larger economic picture 

Despite all of the good news, however, Turners Automotive also notes that inflation and interest rates are, as for everyone, the macro headwinds currently challenging the company's ability to grow as fast as it would like. 

Looking at profits within each division of the business; profit grew 24% in Insurance, 14% in finance, and 26% in Automotive Retail, allowing the company to demonstrate earnings resilience. 

However, profit in its credit management business was down 40%. Auto Retail remains the most profitable division for the business. Turners' market share of its auto retail business continues to grow, the company says, due to its strategic commercial optimisation initiatives. 

The sourcing of vehicles in the local market has been a top priority for the company and it expects a number of new locations to provide it access to sellers thinking about passing on cars to be re-sold at Turners' yards. 

(Source: Turners Automotive) An overview of the company's FY22 results