Market share at 15.9% and rising. Perpetual on why Eagers keeps widening the gap

“Eagers has again delivered within a challenging backdrop, characterised by an Australian market with obvious economic headwinds, a persistent, elevated interest rate environment and an industry that is undergoing historic transformation,” says CEO Keith Thornton.

Perpetual portfolio manager James Rutledge thinks APE is primed to continue growing its market share both in Australia and Canada, even if there are endless examples of offshore M&A not delivering the desired results.

“We think the way they've approached this entry into Canada is lower risk, partnering with a founder that's still heavily involved in the business and incentivised to deliver great outcomes for that business, and so we see that as a lower risk play into an offshore market. But it is not without risks.”

I spoke with Rutledge to get a breakdown of the important numbers coming out of APE’s results, what investors need to pay attention to, and whether its growth can continue.

Key Results - 1H26

• Revenue up 24.0% to $8.1bn vs $7,709.9m ests (5% beat), including $1.0bn from two months of CanadaOne
• ANZ revenue up 8.0% to $7.0bn, or roughly $500m of organic growth
• Underlying operating profit before tax up 26.6% to $250.4m vs $239.7m ests (4% beat)
• ANZ underlying PBT up 4.8% to $207.2m vs $204.5m ests (1% beat), with CanadaOne contributing $43.2m vs $35.2m ests (23% beat)
• Statutory profit before tax up 25.7% to $243.1m, split $202.7m ANZ and $40.5m Canada
• Record interim fully franked dividend of 25.0cps vs 26.6cps ests (6% miss), up from 24.0cps
• Available liquidity of $2,610.9m, up from $1,787.9m at December, with cash of $1,165.2m and corporate debt net of cash at $674.9m
• Gearing of 0.72x against 0.18x at December, with the owned property portfolio up to $1,623.3m including CanadaOne holdings and total property equity of $624.5m
• Second half to carry a full CanadaOne contribution, with the outlook framed around a stable Australian new car market, continued easyauto123 scaling and further acquisition growth
• New vehicle market share of 15.9% in Australia in the first half, with the margin gap to the industry average described as at record levels

Do you currently hold APE and what is your rating?

We think it's a BUY.

What matters from the results?

So they continue to grow market share in Australia really significantly, and that's as a result of partnerships with the likes of BYD, which has really benefited them. The PBT margin at 3.0% in Australia was flat on PCP, but that's a really good outcome given the pressures on the industry and that gap between them and the rest of the industry continues to widen as well. 

Then in Canada they only settled on that business on the 30th of April, so it's still very early days, but the business is is going well: circa 4% EBIT margin, seeing organic growth, and they've given a positive outlook for the second half there as well. So early days there, but that business is tracking well.

How do those outcomes affect the outlook?

They continue to deliver on growth in market share, and they're a clear market leader in Australia, and that's been a great story over a number of years. That gap to peers continues. Where you would see real acceleration is in an improvement in the macro environment. 

There's obvious economic headwinds, I think management called out today, and the persistent, elevated interest rate environment is an issue. But they're doing what they can do in a tough market and they're continuing to deliver.

In Canada, their market share there is only 2.5% at the moment. It is a large market, the average revenue per new vehicle is 30% larger than it is in Australia, and they will have the opportunity to do M&A in Canada and really grow the business there. They only need to get market share to be over 7% to have Canada as large as Australia given that larger revenue per vehicle. So Canada is a real growth engine for the company over the medium term and they continue to deliver in Australia.

What should investors be paying attention to as the story unfolds?

On the downside, it is still the macro. Whilst we are in a relatively tough environment at the moment, it theoretically can get tougher. 

They are though continuing to deliver in that tough macro environment. But it's not an easy environment for the consumer out there at the moment, and that's ultimately the challenge.

What could you be wrong about?

Then it's really around the macro as well as continuing to see changes to the market in terms of EVs gaining share relative to ICE vehicles and challenges in terms of partnering with the right OEMs to deliver the right outcomes for the business. The management team have done that so far, and we back them to continue to do that, but that's something they need to keep doing.