Carsales keeps driving value
Carsales.com (ASX: CRZ) has announced the acquisition of a 50.1 per cent stake in Stratton Finance for $60.1 million.
With around 224,000 cars on its website, carsales.com has a solid platform upon which to generate additional revenue streams. More simply, it has the ability to collect more money from providing multiple services over the same car and to the same buyers.
One important part of car purchasing is financing. Carsales.com has already tried to arrange financing for buyers on its website with a product called iGNTITION, but it failed to ‘fire’ because of the lack of human contact that was provided. While the carsales.com website is very good at generating leads, the lack of soft resources resulted in poor conversion, which meant that carsales.com was watching meaningful earnings walk out the door.
Stratton Finance has successfully expanded from Victoria to become the largest car finance broker in Australia. The success of the company lies in its ability to identify quality leads for financial institutions that have a high rate of repayment, and many of these leads are generated through advertising on carsales.com. With such a strong relationship, it was a natural step for the two businesses to form a partnership, with Stratton Finance providing the soft processes and carsales.com providing the infrastructure and resources to increase capacity.
It’s important to note that many financial institutions use carsales.com to promote their own financial products, and this partnership may cannibalise some advertising revenues as the broking business grows. Management is of the belief that it can meaningfully grow the number of loans through Stratton Finance without stepping on the toes of the advertisers. Either that or the profits from the acquisition simply exceed the advertising profits foregone.
Our initial view is that this is an attractive deal, and we look forward to the full year result when more details are revealed. Montgomery Funds own shares in carsales.com.
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.
INVEST WITH MONTGOMERY
Andrew Longden
:
On what multiple did Carsales make the 50.1% acquisition?