Automotive sector set to hit the revs as Australians get on the road
Australians are planning to get back behind the wheel this summer and automotive stocks are waiting for ignition.
The sprawling ASX-listed automotive sector is one to watch this AGM season as holidaymakers avail themselves of newly restored freedoms and gear up for a good ol’ fashioned road trip.
Of course, with the freedom of travelling offshore effectively confined to Tasmania, householders have no option other than discovering the joys of their own backyard.
Low petrol prices should also fuel the trend.
The expected resurgence in automotive activity bodes well for automotive shares, which encompass dealerships, after-market parts and accessories suppliers, crash repairers and auto financiers.
While commuting trips have plunged because of the (ongoing) working from home requirements, according to the Federal Chamber of Automotive Industries, year-to-date new car sales of 644,891 (to the end of September) were also 20.5 per cent off the pace.
Vehicle sales were 21.8 per cent down for the month of September, but that heavily reflects Victoria’s lockdown.
Meanwhile, used car sales are reportedly booming, which reflects the hygiene concerns about public transport (justified or otherwise).
After 30 consecutive months of declining new car sales, a new consumer survey by UBS says half of the 1200 respondents planned to buy a new car in the next 12 months.
These are tailwinds for AP Eagers (APE), which became the country’s biggest dealer group after merging with Automotive Holdings last year.
Despite the inevitable bottom line damage from the sales lull, the supersized group can’t be accused of standing still. In a debt-funded foray, the company this month shelled out $105m to buy the freehold on eight dealer properties from property trust Charter Hall.
AP Eagers shares have already accelerated ahead of more propitious conditions: up more than fourfold from their March low of $2.70.
An oddity of the coronavirus period is that luxury marques performed better than the bog-standard ones, which refutes the refrain that ‘we’re all in this together’.
The official stats show that while overall new car sales fell 24 per cent between April and July, luxury brands eased 1.1 per cent with sales of one marque — Audi — actually rising 16 per cent. With 33 franchises in Sydney, Melbourne and Brisbane, Autosports Group (ASG) derives 85 per cent of its revenue from the prestige end of the market.
While Autosports dealerships were hardly COVID-immune – the company reported a $102m loss after heavy goodwill impairments — the clear message is that trading since July has been better than expected.
On vehicle usage, the UBS survey shows that 24 per cent of respondents intended to drive more over the next 12 months, while 17 per cent expected to drive less.
That reflects the competing forces of working from home and holidaying locally.
As well as using their car on more occasions, motorists will be travelling further when they do.
This benefits the likes of Bapcor (BAP), which owns the Autobarn and Opposite Lock chains, as well as Super Retail Group (SUL) and its Super Cheap Auto business.
Bapcor this week assured investors that the company was trading “extremely well”, with September quarter revenue up 27 per cent.
Meanwhile, conglomerate GUD Holdings (GUD) owns brand names such as Ryco/Wesfil (filters and the like) and DBA (brake pads).
Suffice to say, more mileage means more wear and tear, while the virus has created pent-up demand for servicing (24 per cent of UBS respondents say they missed a scheduled service because of lockdowns).
Remarkably almost half those who aim to buy a new car — 46 per cent — intend to buy a special utility vehicle or a four-wheel drive. This is music to the ears off-road accessories specialist ARB Corporation (ARB), which also does a line in camping gear such as heavy-duty batteries and portable freezers.
Ahead of its October 15 shareholder jamboree, ARB confirmed September quarter revenue growth of 17.7 per cent, but with “excellent” export growth making up for moderate domestic sales.
The company believes a “substantial proportion” of the growth is attributable to satisfying pent-up demand, but also the trend to local touring.
Tim Boreham edits The New Criterion.
tim@independentresearch.com.au
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