On Friday, Eagers Automotive Ltd (APE:AU) experienced a shift in stock rating as Canaccord Genuity adjusted its stance on the company. The firm downgraded the automotive retailer from a Buy to a Hold rating and reduced the price target to AUD11.00 from the previous AUD11.70.
The decision followed Eagers Automotive's first-half 2024 (1H24) pre-tax profit (PBT) announcement of AUD182.5 million, which aligned with the forecasts shared during the company's annual general meeting (AGM) in May.
While the firm showcased a robust revenue increase of 13.4% compared to the prior corresponding period (pcp), it also reported margin pressures as anticipated in the AGM trading update.
The margin weakness was attributed to several factors, including slight gross margin declines and notably higher bailment costs. The latter was driven by growing inventories and increased rates compared to the pcp. Additionally, internal challenges were noted, such as the need to discount excess inventory from BYD (SZ:002594), a Chinese automobile manufacturer, throughout the period.
Furthermore, a recent large acquisition by Eagers Automotive was pointed out as contributing to revenue but offering minimal pre-tax profit, diluting the overall profit margins. The company maintained strong revenue growth despite these challenges, signaling continued business expansion.
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