Carsales: All Shiny and New Again?

Carsales: All Shiny and New Again?

As an owner of shares in Carsales.com Limited (CRZ: ASX) for some time, we have long thought the blackballing of the site by manufacturers would be short-lived.

In essence, several manufacturers simply told their dealerships that new cars could not be advertised on the site. The issue they had was discounting and undercutting within their own network.

Our view (aside from the company being one of the highest quality businesses listed) has been that removing a vehicle inventory from Carsales.com would result in fewer sales and lost market share. In our view, it would only be a matter of time before dealerships either circumvented the manufacturers’ instructions, or pushed back on their overlords, forcing them to relent.

It is much earlier than anticipated but according to one of our brokers’ analysts – Ivor Ries from Morgans (morgans.com.au) – the conviction of the Big Four carmakers is already waning.

Since January, the number of new, ‘near-new’ and ‘dealer demo’ cars from the mutineers – Holden, Honda, Nissan and Volkswagen – has grown materially, and will continue to grow because Toyota, Mazda and Hyundai have all picked up market share over the past six months.

According to the analyst, Holden’s ‘near-new’ listings amount to 2100 vehicles.  This is twice the December number.

Listings volumes don’t drive revenues at Carsales – enquiries by buyers to dealers do. While our analyst believes every 1 per cent move in enquiry volumes equals $0.5 million in revenues, we’re rather more happy that the company’s dominant position – the driver of its rather attractive returns on equity and intrinsic value – has been entrenched a little more deeply.

MORE BY RogerINVEST WITH MONTGOMERY

Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.