Auto Trader Group PLC (LON:AUTO) shares moved in reverse after Peel Hunt downgraded its stance on the car ads site, saying the current valuation is “full”.
Peel Hunt cut its rating on the stock to ‘hold’ from ‘buy’ and moved its target price to 570p from under review.
The broker noted that Auto Trader’s shares have risen 60% since the start of 2018 as the company has proved it is capable of growth despite a challenging car market.
READ: Auto Trader profits rise but shares drop as it warns of weaker revenue from manufacturers
“Stock listings are still under pressure, but the company’s ability to continue to innovate and launch new products has supported revenue growth,” Peel Hunt said.
It added: “While we believe in the long term prospects of Auto Trader, we believe the current valuation is full.”
The car market has improved after a difficult 2018. In the year to date, new car registrations fell 3.1% and the Society of Motor Manufacturers & Traders has forecast a decline of 1.6% for the full year. That compares to a 6.8% drop in 2018.
Despite improvements in the car market, Peel Hunt said Brexit remains a key risk.
“We acknowledge that any steep deterioration of the macro environment could lead to a reduction in consumer spending, in particular of high-ticket items,” it said.
“However, we have yet to see this happen. Brexit has been a prolonged process, and the car market so far has held up well.”
Peel Hunt thinks the key focus for Auto Trader will be on the delivery of the management team initiatives.
The broker believes Auto Trader’s management has done well in identifying areas to expand by leveraging the existing platform and a key focus
“While the company continues to develop products for the new car market, we believe the biggest opportunity is within the B2B market,” Peel Hunt said.
“If Auto Trader and Cox Automotive can produce a strong B2B model, there is a huge opportunity to disrupt a market which is currently highly physical.”
The FTSE 100-listed shares dropped 2.1% to 540.6p in morning trading.