NZ Automotive Investments Limited Direct Listing - One of the Largest Used Vehicles Dealerships

NZ Automotive Investments Limited (NZAI) aims to list on the New Zealand exchange via a direct listing on 25 February 2021.

NZAI is a used automotive business operating throughout New Zealand. NZAI’s business is split across two divisions: Automotive Retail and Vehicle Finance. The Automotive Retail division was founded in 2011 and it operates under the “2 Cheap Cars” brand. The vehicle finance division was founded in 2019 and operates under the “NZ Motor Finance” brand.

Over FY18-20, on average NZAI sold 11,092 cars each year at a price of NZ$6,845/vehicle to generate a revenue of NZ$76m. As per management estimates, NZAI had an 8% market share of all imported used vehicles sold in New Zealand, for 12 months ending 31 March 2020. Over FY18-20, overall revenue grew by 3.2%, gross profit by 7.86% and pro forma EBITDA by 21.09%. Although, NPAT was down 3.72% due to higher finance costs.

NZAI plans to pay out 50-60% of NPAT as dividend each year. Based on our estimates of FY21 earnings and a 60% NPAT payout ratio, implies 4% cash dividend yield. Please note that this is for illustration purposes only and has not been calculated with any inputs from NZAI.

In comparison to Turners Automotive, its closest peer, the shares will be at a substantial discount on EV/EBITDA basis, however, they will be at a slight premium in terms of p/e and will offer a lower dividend yield, based on our estimates. At the indicative listing price, the yield appears attractive in our view, with the potential growth of the financing business expected to provide some future upside.