Stock Update
Fundamental
Australia

Eagers Automotive Ltd (APE:ASX)

16 Oct 2020
By
APE was a recent purchase in the Value Strategy with members buying into the stock around $9.90 on 6 October.

It entered the strategy because of good numbers reported at its half year results in August. We have seen a number of companies exposed to the automotive sector report encouraging numbers, and APE provided an out-of-the-blue profit upgrade yesterday which took the market by surprise and pushed the stock up roughly 7% on the day. In only 11 days, the stock is up roughly 22% for members which is an incredible start to the investment.

The themes driving the increased demand for cars and car servicing remain strong: people’s aversion to taking public transport and the replacement of international or even interstate travel with intrastate touring. With the pandemic likely to remain an issue throughout much of 2021, at least as far as international travel is concerned, this trend seems likely to continue for some time yet and the strength in this sector looks set to continue. UBS recently provided research stating that Australians spend $63bn a year on international and domestic travel, and at least for this year some of that money is being allocated elsewhere rather than being saved.

APE reported underlying operating profit before tax for the first nine months of the calendar year of $96.6m which is a massive increase of 45.4% on the previous corresponding period. APE didn’t provide revenue figures and part of that increase is because of a reduction in inventory due to supply issues which has lowered the company’s operating costs (as well as Jobkeeper), but the fact 2020 is exceeding 2019’s result is incredible and further evidence of the strength in the sector at the moment.

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