Carsales posts record profit, but market hoped for more

Carsales南京夜网.au CEO Greg Roebuck sees growth opportunities overseas. Photo: Jesse MarlowCarsales南京夜网 chief executive Greg Roebuck believes Australia’s economy can get back on track and help deliver strong growth for the online classifieds giant after the company reported a record first-half profit that slightly missed expectations.
Nanjing Night Net

Carsales delivered a 7 per cent improvement in net profit to $46.7 million, below the analyst consensus forecast of $49.4 million. The company attributed the miss to losses from a business investment in Asia and a surge in marketing and interest expenses.

Its shares fell as much as 7.4 per cent following the release of the result, but later recovered most of the losses to trade down 0.7 per cent at $10.25 in afternoon trade.

Mr Roebuck said the result was good in the current economic environment, with unemployment at its highest level in more than 12 years and the Reserve Bank of Australia recently downgrading its growth forecasts.

“Cars are one of those things where people need to feel good about how the economy is performing,” Mr Roebuck said.

“I think [the economy] is a little soft, but we’ve got a lot of positives; lower interest rates are a good encouragement for consumers to replace their vehicles.”

Mr Roebuck has a bullish view of the Australian economy and believes it will improve in 2015. He said Carsales has had a strong start to the second half.

Assuming that market conditions remain the way they are, Mr Roebuck said revenue and EBITDA should “remain solid” during the June half, with net profit growing more moderately.

Carsales revenue jumped 34 per cent to $150.9 million in the six months to December, while earnings before interest, tax, depreciation and amortisation were up 15 per cent at $72.9 million.

Costs increased by 64.1 per cent over the first half, driven by a large increase in sales and marketing, as well as interest expenses.

The company increased its interim dividend from 14.7¢ to 16.2¢. It will be paid on April 15.

Profit growth was stunted by losses at iCarAsia, a business in which Carsales has a 20.3 per cent stake. iCar lowered Carsales’ net profit by $1.8 million, with its results down 122 per cent from the previous corresponding period. iCar is listed on the Australian Securities Exchange.

Carsales highlighted the opportunities for future earnings growth in its overseas markets, particularly Brazil and South Korea. Mr Roebuck said they had an eye out for further acquisitions and investment opportunities, including taking greater stakes in businesses they were already in.

During the half, Carsales completed the acquisition of Stratton Finance, with the company hoping to grow its earnings by providing finance for car purchasers. Carsales has added 20 staff to the Stratton business.

Credit Suisse analyst Fraser McLeish said that Carsales remains his top pick in online classifieds based on valuation.

Carsales shares are trading at 22.3 times forecast earnings.

“The result was a bit below consensus, but when you go through the revenue lines, really the weakness was through display advertising revenue, which is the one which is more cyclical and partly impacted by weakness in the advertising market,” Mr McLeish said.

“When you go through all the other revenue lines, they’re actually pretty solid. Importantly, they’re showing good revenue growth in their early stage offshore businesses.”

Carsales will also change its ASX ticker from CRZ to CAR, which was not available when the company listed.

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