Auto Trader Group PLC (LSE:AUTO) was driven higher on Tuesday by an upgrade from analysts at UBS.
They moved their rating to 'buy' from 'neutral', saying a recent sell-off had been overdone, although they also cut their price target to 600p from 710p. In late afternoon trading, Auto Trader shares were up 2.3% to 533.40p.
In a note to clients, the UBS analysts said: "The company is a quality compounder and has delivered an 8% historical revenue compound annual growth rate through a combination of price increases and product innovation.
"Yet its revenue still only represents around 5% of UK used car dealer gross profit. Further, we see an opportunity to accelerate growth to 10% by enabling consumers to buy cars from dealers online."
They added: "The share price decline has been driven by concerns that Auto Trader could be impacted by a UK recession and lower market transactions. At 19 times consensus 2024 estimated earnings per share, we estimate the market is pricing in a near 15% cut to consensus full year 2024 EBITDA."
"However, we believe this is too pessimistic, given Auto Trader core revenues are primarily driven by the number of listings on its website, and not by the number of end market transactions. Due to new car supply issues, listings are already 8% below 2019 levels, and listings only fell by -10% post the global financial crisis. We think first half 2023 results (due 10 November) could be reassuring to investors and a positive catalyst." the UBS analysts concluded.