Car Group Confidence Counters Market Fears

Australia | 10:30 AM

Car Group's market update was unspectacular in isolation, but sparked a strong rally as sentiment and market positioning had feared a much weaker outcome.

• Car Group's FY26 result and FY27 guidance overwhelm market fears
• AI adoption helping to drive growth
• Macro economic uncertainty remains a risk
• Valuation higher than for ASX peers Seek and REA Group

By Greg Peel

Car Group ((CAR)), formerly Carsales.com, operates a number of online marketplace websites specialising in classified advertising for vehicles, motorcycles and small boats. The undisputed market leader in Australia, Car also operates in Asia, North America and Latin America.

Reported FY26 revenue of $1.25bn proved slightly below the consensus estimate of $1.27bn. Net profit was $407m, modestly above consensus on $405m.

The miss on revenue was mainly due to the exit of Car10 in Brazil, which is not a big profit contributor.

A final dividend of 43.5cps, 30% franked, took the total FY26 dividend of 86.0cps up 8% on FY25.

Impressively, analysts agree, management was able to deliver on outcomes despite an array of unforecastable global macro concerns including the Middle East conflict, rising oil prices, global inflation and a low consumer confidence.

In the end, forex had the largest impact on the result with movements creating a -2-3% headwind to revenue and earnings.

Around the Grounds

Latin America’s (Webmotors) strong growth was a result highlight. Revenue growth of 19% (constant currency) year on year was driven largely by the Webmotors national expansion plan into key markets outside of Sao Paulo and Rio de Janeiro in Brazil.

Webmotors saw a deceleration in second half revenue growth, down to 16% from 22% in the first half, but that’s when the exit of the low margin Car10 payments factoring business impacted.

South Korea (Encar) saw revenue growth of 15% (c/c). The negative in this segment was a -150bps drop in earnings margin to 45%, on continued investment in marketing, brand and additional branch rollouts.

Morgans expects some ongoing margin compression on further investment in these areas.

The US (Trader Interactive) saw 12% (c/c) revenue growth, considered a good outcome given a broadly flat end market. Significant growth was seen in the Media segment, as Car’s advertising technology has been rolled out, continued progress in Marine, and some incremental tax benefit from Trump’s “One Big Beautiful Bill”.

It was also a good performance from the legacy Australia business, with revenue up 7% and the earnings margin 50bps higher at 66%.

Dealer revenue was up 8% on stronger lead volumes, improved yield and depth uptake from a resilient used car market. Media was up 8% on a strong new car market and a 37% lift in revenue from EVs.

Morgans nevertheless notes slower growth in the second half (6%) versus the first (9%) in the domestic business as lead volumes were likely impacted by the macroeconomic backdrop.

Guidance

For FY27, management is expecting 11%-14% revenue growth (c/c), 10%-13% adjusted earnings growth and 9%-12% adjusted profit growth.

Divisionally, the North America, Latam and Asia segments are expected to deliver double-digit growth with high single digit growth in Australia. After adjusting for forex, the mid-point of guidance is broadly in line with consensus forecasts.

Capex is expected to remain stable at 10% of revenue for FY27.

Management again expects margin compression in North America and Asia in FY27 via investment in marketing and share gains to be partially offset by operating leverage extracted out of Australia and Latam.

Bell Potter notes North America saw a 22% increase in lead volumes in the June quarter, which has driven momentum into FY27.

On the post-result conference call, management commented that market conditions have improved, lead volumes have started strongly in FY27, and that, overall, the marketplace is currently healthy.

Car saw a rebound in lead volumes in the first five weeks of FY27, following a June quarter slowdown in Australia and South Korea.

The key investor question is whether revenue guidance for FY27 is optimistic, RBC Capital suggests, especially when considering that FY26 came in at the bottom end of the guidance range and also benefited from acquisitions.

The positive is that Australia is seeing improving trends to date in FY27 and the US saw strong lead volume which, combined with bundling new products, should underpin price and yield growth.

A weaker macro backdrop could result in revenue growth coming in towards the bottom end of the range, but RBC does see ongoing product development as positive and should underpin double-digit growth over the medium-term.

Jarden remains more conservative on the macro backdrop, with consumer sentiment and the Middle East conflict being ongoing uncertainties.

In Jarden’s view, the key swing factors in FY27 are:

1) whether the rebound in lead volumes holds in Australia and South Korea,

2) whether Trader Interactive (US) sustains double-digit growth following a stable dealer base in FY26,

3) Australian dealer uptake of Nexgate, Car's newly launched dealer platform which goes live on 1 September, as well as dealer price increases expected in October, and

4) the extent of the -2% forex headwind weighted to the first half.

Reflecting the macro uncertainty, forecasts for FY27 are largely skewed towards the bottom of the guidance ranges.

On the Bandwagon

The FY26 results are reflective of Car’s increasing product penetration. Key to this has been its investment in artificial intelligence, Ord Minnett notes.

Platforms like CG/engine and CG/lab are using AI and proprietary data to deliver or test more efficient solutions for consumers, manufacturers, and dealers, and has increased their engagement with Car brands.

This should see the platforms capture more revenue in the future as they become more entrenched in the automotive ecosystem, Ord Minnett suggests.

Morgans points out AI conversational search resulted in a 26% uplift in lead conversions.

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