Auto Trader Group PLC (LSE:AUTO) has been landed with a sell rating from UBS, with the bank citing the potential sector cost impact from the FCA car finance probe, which could run into tens of billions in a worst-case scenario.
According to the broker's assumptions, which it concedes are very subjective, the review outcome might be a compensation pool range of £6.2-11.5bn with no grossing or between £9.8-18.2bn if time-adjusted.
Given that the second-hand car market is weak currently anyway, that kind of hit would be a major blow to the retailers that are Autotrader’s client base, suggests UBS.
“We think this continues to pressure already struggling retailers' profits and may prompt some to proactively optimize their costs, including marketing cuts.
"We do not believe AUTO is priced in for these risks and reiterate our 'sell' rating.”