Consumer Discretionary

Vehicle delivery delays to backpedal Eagers Automotive half-year FY22 earnings

Wed 18 May 22, 11:05am (AEST)
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Key Points

  • Eagers expects a reduction in new vehicle delivers in the first-half of FY22
  • Semiconductor shortages, the Russia-Ukraine war and Chinese covid lockdowns are to blame
  • Automotive stocks which rallied to historically high multiples last year, are now selling off sharply

Supply chain woes has capsized what has otherwise been a strong period of growth for Eagers Automotive (ASX: APE). The company' stock was down -6.6% to $11.10 as the market opened.

Eagers said that its business continues to benefit from a market where demand for new vehicles continues to materially exceed supply. 

The company’s new car order book had grown more than 25% since 31 December 2021, whilst new car margins have remained in-line with the “level strong levels of 2021.”

The ongoing effects of semiconductor shortages, the impacts of the Russia-Ukraine war and China’s covid lockdowns is expected to offset the strong demand backdrop for new vehicles.

Eagers expects a reduction in the number of new vehicles delivered to customers in the first-half of 2022, which will take a toll on first-half earnings.

Underlying operating profit before tax is forecast to be in the range of $183m to $189m for the first-half ended 30 June 2022, down between -12% to -14.8% compared to a year ago.

Automotive blowout

Eagers stock has been a downward trend since topping out last September and down about -17% year-to-date.

The covid rally had brought ASX-listed auto and component companies to historically high multiples and as investors might have noticed, the recent selloff has been headlined by richly valued growth companies.

Eagers peers have been subject to the same downward rerate, with names like ARB Corporation (ASX: ARB) and Super Retail Group (ASX: SUL) down a respective -43% and -22% year-to-date.

Awkward state

Even as their valuations deflate, company earnings have held up relatively well.

During February reporting season, Eagers reported a 105% increase in underlying profit after tax to $288.9. (Note: profits were boosted by a $42.9m sale of assets)

Now, Eagers is in an awkward position where the underlying market for new vehicles remains strong, but vehicle delivery delays will take a toll on near-term earnings.

2022-05-18 10 28 29-Eagers Automotive Ltd (ASX APE) Share Price - Market Index
Eagers Automotive 12-month price chart

 

Written By

Kerry Sun

Finance Writer & Social Media

Kerry holds a Bachelor of Commerce from Monash University and was Vice President of the University Network for Investing and Trading (UNIT). He is an avid swing trader, and drawn to breakouts and technical set ups. Outside of writing and trading, Kerry is a huge UFC fan, loves poker and bouldering.

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