City broker Liberum is bullish on the outlook for Autotrader Group PLC (LON:AUTO) and thinks it can drive growth without the need for any “significant acquisitions”.
“It is clear that management are going to continue to pursue the organic strategy and the market opportunity within its core vertical remains significant,” the broker said in a note to clients on Friday.
Used car listings are important to Auto Trader given that it charges on a per listing basis, and Liberum’s Ian Whittaker is confident that the trend for these transactions is supportive.
“A slowdown in the used car market would likely negatively impact the business, but used car transactions are estimated to grow c.3% in 2017 underpinning our estimates.”
Whittaker estimates that the average vehicle retailer spends around 10% of its gross margins on advertising, of which Auto Trader accounts for around 6% but the company reckons it can take the majority of the other 4% from online and other channels.
The broker isn’t too concerned by the “credible threats” posed by the likes of GumTree, Pistonheads and other competitors either, highlighting that Auto Trader receives four times as many views as its nearest rival.
“It is clear that management are observant and responsive to new innovations that its competitors are developing.
“Auto Trader are close to introducing new innovations themselves, such as dealer reviews and price reviews which will enhance the consumer experience and help maintain their advantage on a views basis.”
Liberum has the stock as a ‘buy’ with a price target of 530p, which implies headroom for a further 26% or so of growth.