Carsales.com
Recommendation
Carsales.com has announced the final terms of its deal to acquire 30% of Webmotors, the No.1 automotive website in Brazil. At A$87.7m, the price is about A$1m less than was flagged in April (see 17 Apr 13 (Buy – $9.11)), and Carsales will have 'various minority shareholder protections including certain veto rights and pre-emptive rights'. It will also be entitled to a board position (to be filled by chief executive Greg Roebuck) and a representative on the management team.
This is potentially a big opportunity for Carsales as Brazil is the fourth largest car market in the world, with about 4m new vehicles expected to be sold in 2013 – four times as many as in Australia. It's also a big vote of confidence in Carsales management – the other 70% of Webmotors is owned by Banco Santander, so it's reasonable to assume that Carsales has been selected as a partner partly for its expertise.
Carsales' shares are almost unchanged since 17 Apr, putting them on a multiple of about 26 times forecast earnings per share for the year to June 2013 and a free cash flow yield of about 3.5%. That looks attractive alongside double-digit growth prospects. BUY.
Note: Our Income and Growth portfolios own shares in Carsales.com.