Carsales Entitlement Offer - Well Flagged Deal for a Well Know Asset, but Last Deal Didn’t Do Well

TPG Telecom Possible Selldown - Founder Could Look to Raise up to US$1bn with a Clean Exit

ECM Weekly (10th Jul 2022) -Tianqi, Thai Life, TPG, SK IE, Weilong, Emperador, Soosan, SoCar, Deewin

Global Emerging Market Equities, Propitious Research

Wium Malan, CFA

Global Emerging Market Equities

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/carsales-com-ltd" target="_blank" data-smartkarma-citation="entities:701:1" rel="noopener">Carsales.Com Ltd (CAR AU)</a> is the leading online car sales platform in Australia, with meaningful consolidated operations in South Korea, China, Malaysia, Indonesia, Argentina, Chile, and Mexico. This is an extremely high-quality company, having delivered an average Return on Invested Capital of 20% and an average Free Cash Flow margin (post-M&amp;A) of 18.5%, over the past 5yrs. At 1.6x Net Debt to EBITDA, its balance sheet also remains strong, despite acquisitive international expansion efforts over the last 5yrs.   The company has a strong sustainable competitive advantage (moat) through the network effect it has created by being the market-leading platform in almost all the geographies in which they operate. Carsales.com’s core advertising revenue streams should be a beneficiary of a cyclical upswing in economic growth, from an incredibly low base, going into next year. The key controversy, however, on the stock is whether they will be able to accelerate their domestic digital advertising revenue growth in light of still-weak, albeit recovering, vehicle sales despite increased economic activity following a year heavily impacted by the COVID-19 pandemic AND whether this accelerating growth will be sufficient to surprise the lofty expectations already set by the Buy-side as indicated by its current 31x NTM PE ratio (a premium of more than 2 standard deviations above its 10yr historical average trading range).

Carsales.Com Ltd (CAR AU) is the leading online car sales platform in Australia, with meaningful consolidated operations in South Korea, China, Malaysia, Indonesia, Argentina, Chile, and Mexico. This is an extremely high-quality company, having delivered an average Return on Invested Capital of 20% and an average Free Cash Flow margin (post-M&amp;A) of 18.5%, over the past 5yrs. At 1.6x Net Debt to EBITDA, its balance sheet also remains strong, despite acquisitive international expansion efforts over the last 5yrs.   The company has a strong sustainable competitive advantage (moat) through the network effect it has created by being the market-leading platform in almost all the geographies in which they operate. Carsales.com’s core advertising revenue streams should be a beneficiary of a cyclical upswing in economic growth, from an incredibly low base, going into next year. The key controversy, however, on the stock is whether they will be able to accelerate their domestic digital advertising revenue growth in light of still-weak, albeit recovering, vehicle sales despite increased economic activity following a year heavily impacted by the COVID-19 pandemic AND whether this accelerating growth will be sufficient to surprise the lofty expectations already set by the Buy-side as indicated by its current 31x NTM PE ratio (a premium of more than 2 standard deviations above its 10yr historical average trading range).

Carsales.com: High Growth Recovery Expectations Already Baked In

CAR Group

Carsales.com: High Growth Recovery Expectations Already Baked In