Why this expert tips a ‘range of additional growth opportunities’ for Carsales shares

A handsome smiling man sits in the front seat of an electric vehicle with his hands on the wheel feeling pleased that the Carsales share price is going up and the company will shortly pay its biggest dividend everA handsome smiling man sits in the front seat of an electric vehicle with his hands on the wheel feeling pleased that the Carsales share price is going up and the company will shortly pay its biggest dividend ever

The Carsales.Com Ltd (ASX: CAR) share price is down 3.83% to trade at $18.59 in late afternoon trading.

The broader market is also down today with the benchmark S&P/ASX 200 Index (ASX: XJO) losing 0.7%.

One expert believes a new acquisition is going to do great things for the online classifieds company.

Is the Carsales share price a buy?

WAM Active Limited (ASX: WAA) is a listed investment company run by Wilson Asset Management. It invests in “market mispricing opportunities in the Australian market”.

For background, the Carsales share price is down more than 25% year to date.

In its June 2022 investor update released yesterday, the fund manager said it was positive about Carsales exercising its call option to acquire the remaining 51% of United States marketplace business, Trader Interactive.

Carsales operates the largest online classifieds business in Australia for cars, motorcycles and boats. It’s also a part-owner of Trader Interactive, which has a leading position in the categories of recreational vehicles (RVs), powersports, and commercial trucks and equipment.

Carsales earnings ‘more resilient’ than the market thinks

In the update, Wilson said the transaction would provide “immediate low, double-digit earnings per share (EPS) accretion, including tax and interest benefits.”

Furthermore:

We are positive on this strategic transaction for the company, with the move to 100% ownership in TI expected to unlock a range of additional growth opportunities for the business.

[The company] also provided a trading update during the month, with FY2022 earnings guidance in-line with consensus analyst expectations.

Despite broader macroeconomic uncertainty, the company noted strong momentum across all markets into FY2023 and we believe earnings will prove more resilient versus market expectations.

The Carsales share price lost about 8% in value over FY2022.

Capital raising completed

In an announcement to the ASX today, Carsales said it has completed the retail component of its fully underwritten one for 4.16 pro-rata accelerated non-renounceable entitlement offer.

Carsales announced the offer to the market on 27 June and it closed on Wednesday.

This is the final stage of the overall $1.207 billion equity raising to enable Carsales to buy the remaining 51% interest in Trader Interactive for US$809 million.

The retail offer was open to approximately 19,000 Carsales shareholders and 8,000 elected to participate.

The offer price was A$17.75 and approximately 10.3 million new Carsales shares were subscribed. This raised A$183 million.

Approximately 10.1 million new shares that were not taken up will be allocated to the sub-underwriters.

A separate offer to institutional investors had a 90% take-up and those new shares are already trading.

Carsales expects to settle the retail offer on 19 July. These Carsales shares will begin trading on 21 July.

The post Why this expert tips a ‘range of additional growth opportunities’ for Carsales shares appeared first on The Motley Fool Australia.

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Motley Fool contributor Bronwyn Allen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended carsales.com Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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