Second-hand online car dealer Auto Trader Group PLC (LON:AUTO) has been upgraded to ‘buy’ from ‘neutral’ by UBS after analysts said a recent sell-off had been “overdone”.
The Swiss bank said the recent acquisition of Motors.co.uk by online shopping giant eBay (NASDAQ:EBAY) and weak new car sales in September had driven the FTSE 250 firm's share price down to around 15% below its peak that month.
READ: Barclays ups target price for Auto Trader but downgrades to ‘Equal Weight’ on lack of upside
However, analysts said the material risk investors were prescribing to the two events were “overplayed” and continued to see upside if the firm provided “visibility over its product pipeline, particularly around finance brokerage and transactions”.
Regarding the eBay acquisition, UBS said it would need to improve Motors.co.uk’s traffic by five times before there would be “a significant impact on Auto Trader’s pricing power”, adding that such a move would be “challenging, costly and unattractive for Ebay to deliver”.
Analysts also said that despite the weaker new car sales, the company’s inventory was actually up year-on-year with used car sales across the 15 large used dealers up 4%. They concluded that even if new car sales remained weak, like-for-like, trade used cars on Auto trader would only be down 2% YOY for 2019.
The bank also retained its 445p price target on the stock, saying it still traded at a discount to its peers at a price/earnings ratio for 2019 of 18x compared to 19x-23x.
In mid-morning trading Wednesday, Auto Trader shares were up 3.6% at 416.7p.