Analysts at the City broker repeated their ‘buy’ recommendation for the stock as they upped their target to 620p from 470p.
As the leader in its field, much like the Yellow Pages in the classified ads space or Google in the search engine arena, they believe Auto Trader is in an enviable position.
“Consumers seek one place where they can find what they want and advertisers want one place where they can advertise to the maximum number of consumers,” read a note to clients.
“As the level of usage drives advertising, and advertising drives usage, it creates a virtuous circle with very strong ‘network effects’.
“This creates a very powerful reason to use the market leader (a comparable today is Google – even though switching to another Search engine is free, 85% of online searches are made using Google).”
Difficult for new entrants
The number crunchers also point out that it is hard for new players to break through, even those with deep pockets.
Auto Trader shares have surged by almost two-thirds over the past year, driven by better-than-expected results, and Liberum thinks there is still plenty of untapped white space.
“Critically for Auto Trader, there are still plenty more areas that the company can expand into to drive revenue growth,” said the analysts.
“An obvious one is in the new car space, not so much around the sale of new cars (although Auto Trader may wish to move more aggressively into that space in the future) but in areas such as helping car manufacturers increase reach with consumers.”
Plenty of white space
The analysts add that fleet and lease customers, which account for roughly half of all new car registrations in the UK, is another area of potential growth.
Auto Trader has already started plotting its entry into this side of the market with the recent tie-up with Cox Automotive. The pair are building an online marketplace for wholesale vehicles in the UK, which should make it easier for companies, manufacturers and retailers to sell cars.
In terms of numbers, Liberum expects sales of £353mln and £383mln in 2019 and 2020 respectively, while underlying earnings (EBITDA) are forecast to hit £251mln and £280mln.
Shares were down 0.5% to 554.6p on Wednesday morning, almost 70p shy of Liberum’s new price target.