Liberum downgrades Auto Trader, says stock fully valued
By Michele Maatouk
Date: Thursday 02 Jul 2020
(Sharecast News) - Liberum downgraded its rating on shares of Auto Trader on Thursday to 'hold' from 'buy' and cut the price target to 515p from 640p as it said the stock looks fully valued given the uncertain outlook.
The broker said: "Auto Trader's March YE allowed FY20 to have limited Covid impact, where continued appreciation in average revenue per retailer drove growth in the trade business.
"However, for FY21 the outlook has become murky, with retailers already dropping out of the market."
Liberum said it likes Auto Trader as a business model. It holds an undisputed advantage and disproportionate share of traffic versus its closest competitors, the broker said, which in recent years has allowed to it to drive revenue and earnings growth through ARPR from a dominant position.
"However, given the likely economic downturn, we see a continuation of retailers dropping out of the market altogether, and those who survive will need to preserve margins and not take premium products to improve their offering.
"Therefore, given growth in recent years has been driven by upsell as the market has become more penetrated, we see material headwinds for growth."
At 1040 BST, the shares were down 1% at 517.80p.
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