Eagers Automotive goes into overdrive off strong earnings

In what's been a relatively tough time for the industry, Eagers Automotive has emerged in pole position after excellent half-year results suggested it is well-positioned to capitalise on any recovery for the sector.

With outsized sales of hybrids and electric vehicles, the company is now looking at $1 billion of revenue growth in 2025.

On Thursday, APE shares were up almost 20%.

We spoke to Auscap's Will Mumford to get the lowdown on what's been one of the standout results this week.

Eagers (ASX: APE) H1 results summary

• Revenue $6.50b (8.5% beat)
• Underlying PBT of $197.7m (4.4% beat)
• New unit car sales 88K (vs year-ago 72K)
• Interim dividend per share of $0.24

What was the key takeaway from this result in one sentence?

A great result from an impressive management team, with revenue growth well ahead of market expectations and multiple opportunities for material earnings upside.

Were there any surprises in this result that you think investors need to be aware of?

The two highlights from the result were strong revenue growth and an improving new vehicle market outlook. Eagers had been flagging $1 billion of revenue growth for the calendar year.

They’ve already achieved this target in the first half, with management suggesting on the conference call that $13 billion of revenue is very achievable for the 2025 calendar year, which is more than the market had been expecting for calendar year 2026.

Secondly, whilst automotive dealership margins have been severely impacted by cyclical market challenges in recent years, Eagers are now pointing to “green shoots”. Their margins troughed in the March quarter, with market conditions improving following the election and momentum increasing again after recent rate cuts. Industry profit margins have more than halved in the last four years, but Eagers has been able to keep its profits roughly flat through growing revenue by over 50% and productivity initiatives. 

This suggests that in a stronger market, they have significant scope for higher earnings.

Would you buy, hold or sell Eagers off the back of this result?

Rating: Buy 

Largely due to their scope for material earnings upside from multiple sources. The automotive dealership market is in the early stages of a recovery from a cyclical low and should benefit from any future rate cuts in Australia. 

Eagers have identified productivity initiatives to drive their profit margins materially higher. Eagers are well-positioned to take market share during the New Energy Vehicle (NEV) transition, with Eagers currently selling 34% of Australia’s NEVs relative to their overall market share of 13.8%. The adjacencies of EasyAuto123 and BYD are yet to hit maturity and remain large profit opportunities. 

Finally, on top of Australian inorganic growth, Eagers are cautiously considering international expansion opportunities. 

Whilst we are cognisant of the strong appreciation Eagers’ share price has seen over the last 12 months, there are many growth opportunities ahead of the business and the multiple of earnings relative to the broader market is reasonable.

Are there any risks investors need to be aware of?

The P/E multiple the company trades on has expanded over the last year, which investors should note. The other key risk is the risk that comes from any potential international expansion. 

In this regard, we take comfort from the significant share ownership of Eagers’ board members and Eagers’ management reiterating today that they’re taking their time to fully conduct their due diligence before any offshore move.

From 1 to 5, where 1 is cheap and 5 is expensive, how much value are you seeing on the ASX today?

Rating: 4

In the context of the market being on an elevated P/E multiple relative to history, I would have to say 4. But there are pockets of extreme valuation offset by other areas where we see opportunities as an active manager. Areas of opportunity include businesses that were sold off harshly over reporting season despite robust medium-term growth outlooks, businesses positioned to benefit from interest rate cuts, businesses with significant earnings leverage to an improving consumer environment and businesses with reasonably priced structural growth opportunities.