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Growth Portfolio: Ltd (ASX: CAR)


Published 28-JAN-2016 00:00 A.M.


1 minute read

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Overview: Limited ("Carsales", the Company"), is an Australian software company focused on online advertising services, data research, and vehicle finance services. The Company’s primary business segment is online classified advertising for cars, boats, and motorbikes across the Carsales network. Carsales has operations in Australia, New Zealand, China, Malaysia, Thailand, Indonesia, South Korea, and Brazil.

Catalysts: Carsales is the market leader in the Australian online advertising sector for cars and has achieved average top-line growth of 21% per annum over the past five years. Continuation of the trend is the major near-term driver. In order to sustain the trend, Carsales focuses on both overseas and domestic expansion, which is starting to materialise. The Company generates free cashflow which allows for strategic acquisitions, investments, or higher dividend payments in 2016.

Hurdles: Despite double-digit revenue growth, earnings have risen at a slower pace due to an increase in capital spending. Acquisitions remain subject to integration risks and there is no guarantee that these investments will yield economic benefits. The industry has low entry barriers, hence Carsales could face increasing competition.

Investment View: Carsales offers profitable exposure to the online classified advertising market. We are attracted to its dominant market position, historic growth trajectory, and free cash flow. Integration of its acquisitions and rising competition are principal risks. Continuation of the trend remains the primary driver, however, there is scope for additional growth through strategic acquisitions financed via surplus cash flow. Recognising its growth potential, we initiate coverage with a ‘buy’ recommendation.

General Information Only

S3 Consortium Pty Ltd (S3, ‘we’, ‘us’, ‘our’) (CAR No. 433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information and is for informational purposes only. Any advice is general advice only. Any advice contained in this article does not constitute personal advice and S3 has not taken into consideration your personal objectives, financial situation or needs. Please seek your own independent professional advice before making any financial investment decision. Those persons acting upon information contained in this article do so entirely at their own risk.

Conflicts of Interest Notice

S3 and its associated entities may hold investments in companies featured in its articles, including through being paid in the securities of the companies we provide commentary on. We disclose the securities held in relation to a particular company that we provide commentary on. Refer to our Disclosure Policy for information on our self-imposed trading blackouts, hold conditions and de-risking (sell conditions) which seek to mitigate against any potential conflicts of interest.

Publication Notice and Disclaimer

The information contained in this article is current as at the publication date. At the time of publishing, the information contained in this article is based on sources which are available in the public domain that we consider to be reliable, and our own analysis of those sources. The views of the author may not reflect the views of the AFSL holder. Any decision by you to purchase securities in the companies featured in this article should be done so after you have sought your own independent professional advice regarding this information and made your own inquiries as to the validity of any information in this article.

Any forward-looking statements contained in this article are not guarantees or predictions of future performance, and involve known and unknown risks, uncertainties and other factors, many of which are beyond our control, and which may cause actual results or performance of companies featured to differ materially from those expressed in the statements contained in this article. S3 cannot and does not give any assurance that the results or performance expressed or implied by any forward-looking statements contained in this article will actually occur and readers are cautioned not to put undue reliance on forward-looking statements.

This article may include references to our past investing performance. Past performance is not a reliable indicator of our future investing performance.