Auto Trader’s Growth Is Accelerating Online

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Online car marketplace

Auto Trader Group,

which started as a print magazine, has found important avenues of growth that have been overlooked by investors.

Auto Trader (ticker: AUTO.UK) has added services that include helping customers get financing, and it’s considering lucrative transportation services that move vehicles around the country from seller to buyer.

Auto Trader is the market leader for selling and buying new and used cars in the U.K., with about 475,000 listings and partnerships with more than 13,300 retailers, according to the company. It has averaged more than 57.3 million monthly visits across all of its platforms, including mobile, desktop and the app. It’s unrelated to Autotrader, a similar U.S. company.

Dealerships pay to advertise vehicles, and individual buyers and sellers also pay a fee unless the transaction is under 1,000 British pounds ($1,387). Auto Trader derives additional income by charging companies to sell insurance and automotive parts. The Manchester, England-based company is also using data in an impressive way, which means the stock should be seen as a technology play, rather than as a media stock. Auto Trader collects data from online visitors that it then uses to match sellers and buyers for both new and used cars.

The shares have fallen 3.33%, to £5.70 ($7.91), over the past three months because consumers stayed home during pandemic lockdowns, depressing sales.

Auto Trader stock could now be a good buy. Alastair Reid, an analyst at Investec who has a £6.75 price target on it, wrote in a client note that the company “has been investing in transforming its business model toward becoming a technology provider to the industry for some time, and returns on this investment are now starting to come through.”

Reid wrote that the shift, which could transform how the industry operates, isn’t reflected in the stock’s valuation. The firm has a £5.4 billion market value and fetches a multiple of 25.2 times this year’s expected earnings. Auto Trader is valued in line with its peers.

The company posted a pretax profit of £251.5 million for the year ended March 31, 2020, up slightly from £242.2 million the prior year. Annual revenue was £368.9 million. Earnings for 2021 are due to be reported next month.

Chief Executive Officer Nathan Coe said in a statement to Barron’s that car purchases have accelerated, driven in part by high savings levels and low interest rates. “It is clear that more of the car buying process will be completed online before visiting the retailer from this point forward,” he added. “As the largest marketplace in the U.K. by some margin, and having supported customers throughout the pandemic, we are perfectly placed to enable the buying and selling of cars online, which has been our focus throughout the pandemic and remains our key strategic priority moving forward.”

In 1977, entrepreneur John Madejski launched a regional classified-ad magazine called Thames Valley Trader. In 1996, the Auto Trader website was created—two years before Google was conceived. Thames Valley Trader’s final print edition was published in 2013.

Growth will come from the Auto Trader’s additional services, including a program that allows consumers to trade in their used car for a guaranteed price, with the value deducted from the price of the vehicle they’re purchasing.

“Auto Trader is in the process of building all of the individual pieces that will fit into a larger offering, enabling consumers to trade cars fully online, from the initial search through to remote delivery,” Harry Read, an analyst at broker Liberum, wrote in a note.