Carsales.com: Result 2013
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Carsales.com has reported a 16% rise in earnings per share to 35.5 cents, at the top end of the range forecast by analysts.
Total revenues grew 17% to $184m, with display advertising (25% of the total) leading the way, rising 25%, and private classifieds (17% of the total) lagging with growth of 7%. The other two segments – dealers (44% of the total), and dealer and data services (13% of the total) – each grew in line with the overall increase.
The increase in dealer revenues was mainly the result of the February price increases (the first in more than five years) combined with continued growth in automotive enquiries.
Key Points
- EPS grew 16%; free cash flow up 29%
- Acquisitions appear to be performing well
- Forward PER of 25, but FCF yield of 3.6% is attractive
The company's operating metrics all saw decent improvements, with automotive inventory up 8% and automotive dealer enquiries up 9%.
| Year to 30 June | 2013 | 2012 | /(–) (%) |
|---|---|---|---|
| Revenue ($m) | 215 | 184 | 17 |
| EBIT ($m) | 118 | 98 | 20 |
| Net profit ($m) | 84 | 72 | 16 |
| Free cash flow ($m) | 90 | 70 | 29 |
| EPS (c) | 35.5 | 30.6 | 16 |
| FCF per share (c) | 38.1 | 29.6 | 29 |
| DPS (c) | 28.3 | 24.5* | 16 |
| Franking (%) | 100 | 100 | |
| * excludes 6c special dividend | |||
About Quicksales (the company's 'sell anything – for free' private classifieds site) the company said nothing, other than that 'its strategy continues to evolve' and an exhortation in the chairman's letter for shareholders to visit the site. We take this as a bad sign, but this business is a long shot at best and we don't include anything for it in our valuation.
Prodigious cash flow
One of the major attractions of Carsales.com – like many web businesses – is its cash flow, and 2013 didn't disappoint. Net cash flow from operating activities rose 22% to $91m and, with virtually no capital expenditure, free cash flow (before acquisitions, which we'll come to) was up by 29% as 2012 included relocation expenses of $4.3m.
Unlike past years, which have seen healthy dividends and cash building up on the balance sheet, all of that free cash flow, plus a little more, was spent on acquisitions in 2013. Specifically, the company spent $88m buying 30% of Webmotors, Brazil's number one automotive classifieds site, as well as $13m buying 20% of the ASX-listed iCar Asia, which has car portals occupying number 1 or 2 positions in Thailand, Malaysia and Indonesia.
Even so, the company raised its final dividend by 18% to 15.6 cents (fully franked, ex date 5 Sep), to make 28.3 cents for the full year (up 16% excluding 2012's special dividend). The result was that the company went from having net cash of $41m to having net debt of $39m. With free cash flow covering the debt twice over, though, Carsales' balance sheet remains extremely strong.
Acquisitions growing fast
The Webmotors deal only closed on 28 June, but Carsales' 2013 result includes a $232,000 net loss in respect of its share in iCar Asia. Both businesses appear to be doing well, however, with Webmotors increasing inventory by 13% in the three months to June and iCar Asia more than doubling inventory in Thailand and seeing gains of 33% in Indonesia and 10% in Malaysia.
In terms of the outlook, the company said that the first six weeks of the current year had seen 'solid growth' on the previous corresponding period. It also singled out mobile traffic and the overseas businesses as areas of focus.
The stock is up 18% since 24 Jun 13 (Buy – $9.07) and 16% since we upgraded in The hidden value in Carsales on 13 Mar 13 (Long Term Buy – $9.21). That puts it on a multiple of about 25 times forecast 2014 earnings per share of about 42 cents. On its own that doesn't look so appealing, but the free cash flow yield of around 3.6% is much more so for a company with Carsales' growth prospects. BUY.
Note: Our Income and Growth portfolios own shares in Carsales.com.
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