The Eagers Automotive Ltd (ASX: APE) share price is nudging all-time highs. Shares in Australia’s oldest listed automotive company have surged more than 300% in the past year.
Despite having limited exposure to hot sectors like e-commerce, Eagers has been an unexpected winner post-pandemic.
So, why exactly are investors flocking to buy shares in Eagers?
Eagers share price jumps on update
Last Friday, investors were jumping to buy shares in Eagers after the company released a promising market update.
For the 3 months ending 31 March 2021, Eagers expects to record an underlying operating profit before tax from continuing operations of approximately $98 million. In addition, the company noted that on a statutory basis, net profit before tax for the quarter is expected to be $105 million.
Owning over 250 car dealerships across Australia and New Zealand, Eagers credited unusually strong market dynamics for the performance. Eagers also highlighted the company’s ongoing strategy to reduce costs for the result.
Eagers also noted the sale of its Daimler Truck Operations and Milperra property. The automotive dealer advised that the sale to its US-based business should be completed in the first half of 2021. Subject to completion, Eagers estimates a net gain before tax of $32 million to $36 million from the sale.
The outlook for Eagers
In late February, Eagers released its financial results for FY20. Despite COVID-19 lockdowns keeping consumers away from showrooms, Eagers declared statutory revenue of $8,749.7 million compared to $5,817 million in FY19. In addition, the company reported a 102% increase in underlying profit after tax of $140.4 million.
In its report, Eagers cited solid growth in its share of the new vehicle market for FY21. The company also highlighted its pre-owned vehicle strategy, which delivered strong year-on-year growth.
Although there has been no clear explanation, there are several theories as to what’s fuelling demand in the automotive industry. Early last month, the Federal Chamber of Automotive Industries (FCAI) noted Australian new-car sales had surged 4 months in a row.
In order to capture the booming market, Eagers plans to radicalise how consumers purchase their next vehicles. The automotive conglomerate plans to construct a mega-complex near Brisbane airport. The facility is expected to host a test track and two dozen showrooms. In addition, the company also plans on expanding new-car showrooms to shopping malls from the end of this year.
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Motley Fool contributor Nikhil Gangaram has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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