Auto Trader Plc - Fundamental Investment Case

Auto Trader Group helps dealers and regular people buy and sell cars in the UK and Ireland. The company operates the UK's largest digital automotive marketplace. Auto Trader Group is now a 100% digital business after transitioning from a print title back in 2013. The company helps vehicle retailers sell more vehicles more efficiently. The Auto Trader Group digital marketplace brings together the consumer audience with the largest pool of vehicle sellers, listing more than 400,000 cars each day. The company started trading on the London Stock Exchange in 2015.

Qualitative Concerns:

• A formerly dominant company, Auto Trader, now faces intense competition from successful US based rival CarGurus.
• Late in 2018, after Auto Trader reported 1H results, CarGurus made a large acquisition in the UK. In addition, the company has launched their first TV advertising campaign in 2019.
• Google trends and Comscore metrics show CarGurus is already making an impact.
• Ebay purchased a large UK competitor in late 2018 to get additional scale in the market. 
• New and used car transactions continue to weaken from diesel law changes and Brexit uncertainty. 

Fundamental Concerns:

• Pricing and new product mix make up over 100% of Auto Trader's growth.
• Car listings and retailer growth is flat to negative even before the step up in competition in late 2018 and early 2019.
• The small but growing manufacturer business already appears to be slowing.
• Guidance and estimates model in past growth rates and margin profiles despite the increase in competition.
• Margins appear unsustainably high compared to the more competitive US market. Vision believes the gap will close. 
• Valuation appears stretched on top of unrealistic future estimates.