Like a passenger in the back of a Bentley Continental, shareholders in Auto Trader have enjoyed a smooth ride since it debuted on the stock market in 2015 (Simon Duke writes). The online bazaar for used and, more recently, new cars has cruised into the ranks of Britain’s 100 most valuable quoted companies.
Half-time numbers yesterday offered a demonstration of its skill in moving through the gears. Brexit uncertainties and the backlash against diesel have cast a pall over the broader car market, but there is scant trace of this in Auto Trader’s first-half report. Revenues rose 6 per cent to £187 million in the six months to the end of September, with pre-tax profits jumping 12 per cent to £128 million.
The company has become a prodigious engine for cash generation. It returned just shy of £70 million in its fiscal first half — £27 million through share buybacks, with dividends accounting for the rest. Such generosity is automatic for a dominant online platform. Auto Trader has signed up more than 80 per cent of British car dealers. Like Rightmove — whose co-founder Ed Williams, 57, is now chairman of Auto Trader — the car site has its market sewn up.
Auto Trader’s journey offers an object lesson in how to manage the transition from analogue to digital. Over the past couple of decades it has transformed itself from ink-stained publisher to all-powerful marketplace. For holders of this highly rated stock the question is less whether it can protect its quasi-monopoly and more where the growth opportunities now lie.
The company was founded in 1977 as a classified advertising newspaper for Thames Valley car buyers. Sir John Madejski, 78, made a mint from the paper, which he used to fund the takeover of Reading Football Club. After Sir John departed it began migrating online in the mid-1990s, and by 2013 the physical magazine was retired entirely.
The owner of the Guardian and Observer newspapers took control of Auto Trader in 2000. Guardian Media Group sold a 49.9 per cent stake to Apax Partners in 2007, and the private equity firm bought the publisher’s controlling stake for £600 million in 2014. Within 18 months the company floated. Had it retained its holding, GMG would now be sitting on an asset worth more than £2.5 billion.
Auto Trader employs about 800 people and is based in London. Although the medium has changed its business has remained the same: it makes its money by connecting car buyers and sellers. Dealerships accounted for £162 million of revenues in the first half, or 89 per cent of the total. The rest comes from private sellers and manufacturers selling new models. The latter is a relatively new category, and has suffered a stuttering start.
To advertise on Auto Trader, a dealer pays a monthly subscription fee linked to the number of cars on its forecourt. It can pay extra for a more prominent display or to highlight financing deals. This ancillary income is expanding steadily, boosting revenue per dealership and profit margins.
Auto Trader has shown itself resilient to volatile motor sales. It is a more than respectable bet for these uncertain times, especially when considering that its shares have fallen by about a tenth from an all-time high of 600p in May.
The stock, however, is no cut-price clunker. It’s trading on a price-to-earnings ratio of 25 times. It would be imprudent for existing investors to sell out now; why risk the same embarrassment as GMG? Prospective buyers, though, would be advised to wait for further weakness before firing up their engines.
Advice Hold
Why Autotrader is a well managed company with a dominant position. But its shares are richly valued
Wood Group
The transition from fossil fuels to more sustainable forms of energy is occupying the minds of many people around the world (Greig Cameron writes).
Bosses at Wood Group, still best known as a provider of services to the oil and gas industry, are among those pondering the issue.
The acquisition of Amec Foster Wheeler in 2017 accelerated its diversification efforts and an update for analysts yesterday laid out a roadmap for growth through to 2023. While acknowledging a need for oil and gas for some time yet, it showed expectations of securing more projects in areas such as sustainable infrastructure, renewable energy and the built environment.
The engineer is also looking to build on its digital capabilities as well as partnering with other businesses.
Wood can trace its roots from 1912 and has been listed in London since 2002. With 60,000 staff across more than 60 countries it provides consulting, engineering, project management and other support services to industries such as energy, utilities, chemicals and nuclear.
Wood said it was trading “broadly in line” with expectations for the year even through activity is slower in some areas. Analysts pencilled in a pre-tax profit of $315 million and revenues of $10.4 billion for this year.
The sale of its nuclear division to Jacobs for about $305 million is expected to be finalised in the first quarter of 2020 and the proceeds will be used to reduce net debt.
Robin Watson, chief executive of Wood, said it was responding to trends such as energy security and transition, digital technology and the demand for sustainability. He cited projects such as the analysis of environmental impacts at Heathrow airport and designing improvements for an extension to the Toronto Metrolinx rail system as examples. Some $30 million of new cost savings are mooted over the next few years.
Mr Watson, 52, said: “It is not about getting top of the world in 32 sectors. It is about what sectors give us the margin we want across the services we provide.”
In recent weeks shares have traded at less than half of the 796p reached in October last year. Last night they closed up 25p, or 7 per cent at 380p.
Advice Hold
Why Solid dividend and less reliance on oil and gas
