Eagers Automotive driving a profit boom

A global shortage of cars and pent-up local demand is helping to drive record sales and earnings for the nation’s largest car dealer.

As Covid-19 spread across the country, Australian consumers began to buy up homewares, furniture, computers and, increasingly, cars.

A combination of a pent-up demand for cars, constricted global supply chains causing backlogs of deliveries, and rising prices for both new and used vehicles has delivered record results for the nation’s largest dealer, Eagers Automotive.

Throw in the surplus $60bn once spent by Australians travelling overseas but now being splashed at home, and the automotive sector is one part of the economy enjoying buoyant conditions through the recent stages of the pandemic.

Eagers Automotive, which has around an 11 per cent share of the Australian car market, said in a trading update for the half year to June that it expects underlying operating profit before tax from continuing operations to be roughly $218.6m.

This compares to $40.3m for the first six months of 2020 when the emergence of the Covid-19 pandemic dented the business.

Eagers said the new car market continues to rebound from the initial onset of Covid-19, with a 28.3 per cent increase compared to the first six months of 2020.

“These market dynamics are further buoyed by demand continuing to materially outstrip supply,’’ the car dealer said.

“Underlying profit continues to be supported by the ongoing benefits of our material cost-out program completed over the last 12 months and the ongoing synergies resulting from the company’s transformative merger with AHG.”

In 2019 Eagers Automotive, then known as AP Eagers, cemented its position as the country’s biggest car dealer through the purchase of rival and ASX-listed AHG for $2bn.

Later, as the pandemic hit and it booked impairments or revaluations on property and took a hit from the exit of Holden from the local market, it was forced to report a loss and cancel its dividend.

It was also forced to rely on wage subsidies from the Australian and New Zealand governments including $130m in JobKeeper. Around 75 per cent of its more than 8200 workers were put on the local JobKeeper scheme to save thousands of jobs.

Eagers CEO Keith Thornton. Picture: David Clark

But as Covid-19 spread across the country forcing many states into lockdowns and cancelling travel plans indefinitely, Australian consumers began to buy up homewares, furniture, computers and, increasingly, cars. Online shopping has also proved popular, even for buying cars, with Eagers Automotive doing a good trade in click and collect.

Recent statistics show demand for new vehicles for business and private use remain strong, with a record number of 100,809 new vehicle sales recorded in May, up 68.3 per cent for the same month in 2020.

That surpassed the March result of 100,005 sales and has the industry on track to return to sales of more than one million new vehicles for the year.

The brisk rate of sales is also being helped by a global shortage of automobiles caused by disruptions to supply chains which are delaying the delivery of cars to Australia.

Peter Warren Automotive, which recently listed on the ASX and has 70 car yards, mostly across Sydney and southeast Queensland, has also delivered a profit upgrade to reflect the upbeat conditions and will beat its prospectus profit forecasts.

The hot demand for cars is also spilling into the car accessories market. Car accessories manufacturer and retailer ARB earlier this month provided strong profit guidance, with its sales for 2021 up 33.9 per cent.

Eagers Automotive shares rose 33c to $16.03 on the profit upgrade before closing up 1.9 per cent at $15.99. Its shares are up 128 per cent in the last 12 months. It will report its final results for the June half on August 26.