Australia | Aug 28 2009
By Chris Shaw
Super Cheap Auto ((AUL)) has managed to deliver a profit result in line with the market’s expectations. Its profit of $32.1 million for the year represents an increase of 25% from FY08. The result was driven by a 15.9% increase in sales, the BCF franchises being largely responsible given their 31% growth in revenues.
A highlight of the result, according to Bank of America Merrill Lynch, was comparable store sales growth, which in the BCF stores came in at 12.5% and in the Auto stores was a record at 7.3%. Given the result, the broker has lifted its earnings forecasts by 17% for the coming year, which implies 25% earnings growth for FY10.
In earnings per share terms the broker is now forecasting 37.9c for FY10 and 44.4c for FY11, which is enough to support its increase in price target to $6.00 from $4.50. UBS was similarly impressed and given the strong start made so far to FY10, UBS has lifted its EPS forecasts by 7-10% and now expects 36c this year and 41c in FY11. Consensus EPS forecasts according to the FNArena database stand at 37.4c and 42.1c respectively.
The changes lead UBS to estimate the shares as at yesterday’s closing price of $4.62 were trading on a 15% discount to peers, which in combination with the expected earnings growth in coming years is enough to justify a Buy rating in its view.
The growth in earnings UBS expects appears relatively low risk given some will come from a continued rolling out of BCF stores, with some to also come from refurbishments of current stores across the company’s range. As well, a relatively new sourcing strategy is still delivering benefits, so helping lift group margins.
RBS Australia also notes the company continues to deliver market share gains, a trend it expects will continue through FY10 and beyond. Like UBS, the broker is also positive on the margin outlook for the company and given the high quality of the management team in place it can easily justify a further re-rating of the stock.
While RBS Australia, UBS and Bank of America Merrill Lynch all see the stock as a Buy, GSJB Were remains at Hold, noting while it likes the growth outlook and the valuation is attractive it would look for any periods of share price weakness to add exposure.
GSJB Were’s Hold means the FNArena database shows a total of four Buys and two Holds, with an average price target of $5.14, up from $4.42 prior to the earnings result. Shares in Super Cheap Auto today are stronger and as at 1.55pm the stock was up 33c or more than 7% at $4.95. Over the past year the shares have traded in a range of $1.90 to $4.95.
