Eagers Automotive Geared For Better Second Half

Australia | 10:45 AM

Despite softer industry conditions and ongoing supply constraints, Eagers Automotive is considered well positioned for a stronger second half, supported by record orders, CanadaOne growth opportunities and accelerating new energy vehicle adoption.

• Eagers Automotive’s trading update slightly underwhelms
• Record orders, supply constraints, competition on the rise
• Upside risk to guidance largely depends on vehicle supply
• Cheaper share price seen as an opportunity

By Mark Woodruff

Australia's largest automotive retailer Eagers Automotive ((APE)) continues to outperform against a backdrop of weakening conditions for the sector.

The industry's challenges were underscored this week when Peter Warren Automotive ((PWR)) reported a sharp decline in new vehicle margins and issued FY26 guidance well below expectations.

At last week’s AGM, Eagers management reviewed FY25 results, recounted strategic highlights and commented upon the outlook, where a record order intake and acquisition contributions support a robust second half.

While highlighting several external uncertainties relating to constrained supply and the macroeconomic backdrop, management stressed “the underlying performance of the business is strong”, noting the two busiest trading months of May and June represent 20%-25% of full year profits.

Despite record order volumes, Moelis notes strong demand for battery electric vehicles and Toyota vehicles has outpaced supply, constraining first-half deliveries.

An order bank that has grown 70% since December 2025 is, nonetheless, expected to underpin second-half earnings as supply constraints ease, though some of the benefit will be offset by higher interest costs.

Year-to-date to the end of April, turnover has risen 5% on the same period last year and the order intake is at record levels.

All else being equal, UBS notes a softer-than-expected trading update suggests downside of between -2%-4% to the consensus forecast for first half profit before tax (PBT), depending on the contribution from the recently acquired CanadaOne Auto Group (CanadaOne).

Guidance is for first half underlying PBT in line with, or slightly ahead of, the first half of 2025 across the A&NZ operations, implying to Macquarie either a turnover slowdown in May/June, or (more likely) margin pressures.

Canaccord Genuity believes upside risk to guidance is primarily dependent on vehicle supply rather than demand, with the timing and volume of deliveries likely to determine the outcome.

While additional BYD deliveries ahead of June 30 are not certain enough to underpin guidance, this broker feels there is a high probability supply volumes will increase from the current year-to-date pace of around 7,000-8,000 vehicles per month.

It’s believed Eagers' A&NZ operations will deliver a record result in FY26, yet Canada remains the cornerstone of Canaccord’s medium-term investment case.

That investment thesis rests on current market share of around 2% expanding to 4%-5% over the next five years through a combination of organic growth and further industry consolidation.

Two months of trading contribution from CanadaOne should help Eagers deliver a record first half at the consolidated level.

Current uncertainties

While Eagers operates a diversified portfolio spanning 54 original equipment manufacturer (OEM) partners and holds more than one-third of the new energy vehicle market, including over 80% of BYD sales, management highlighted the relatively low barriers to entry for new automotive brands in Australia.

Macquarie notes BYD is increasingly focused on export markets such as Australia, where margins are more attractive, supporting Eagers' strong position in the segment.

Management reported order intake has increased 33% year-on-year so far in 2026.

Against this backdrop, competition remains intense, with ongoing macroeconomic pressures adding to industry challenges.

UBS highlights potential wealth-effect headwinds from higher interest rates and recent Federal Budget measures.

Used cars

Ord Minnett describes the start to 2026 as robust, with the used vehicle division, comprising easyauto123 and Carlins, also delivering a record performance. Profit before tax for the segment rose 40% over the period.

Management announced a non-binding term sheet for a strategic 17.5% investment in Karmo, a vehicle subscription platform with more than 3,000 subscriptions spanning 250 models and over 35 automotive brands.

This investment should broaden Eagers’ customer reach and create strategic opportunities across its new and used vehicle businesses, Morgans suggests.

The bulls

Morgan Stanley regards the current supply constraints as temporary and believes A&NZ profit would have been materially higher without them.

The broker argues the resulting disconnect between earnings potential and market sentiment has created an attractive opportunity, particularly ahead of expected second-half supply tailwinds.

Morgans agrees, suggesting recent share price weakness provides an attractive entry point given forecast 2027 EPS growth of 19%.

Analysts generally see structural growth opportunities from consolidation in Australia and Canada, strategic alliances, used vehicle expansion and ongoing leadership in new energy vehicles.

Margins

In a structural separation from industry norms, according to management, Eagers’ margin gap to the industry has expanded to 2.5% in the second half of 2025 from a low of 0.7% earlier in the year.

Management's long-term target is 5%.

Management commentary on easing Toyota supply constraints suggests to Macquarie potential for margin upside in the second half.

The company also highlighted its Canadian business will have a 2H skew from Toyota.

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