What companies will benefit from new vehicle sales increasing?

Automotive Holdings Group and AP Eagers are both seeing higher sales.

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New vehicle sales in December were up by a seasonally adjusted 1.7% from the previous month, yet compared to the previous year, the rise was only 0.1%. A peak of 97,560 vehicles sold in 2012 still stands, but only by a 546 car gap, with December 2013 sales estimates at 97,014.

new vehicle sales - long term     ABS











Source: Australian Bureau of Statistics

Over December the biggest surge in percentage sales change was in WA up 5.2%, followed by QLD up 4.2%. NSW came in fourth after ACT, 2.2% versus 2.5% respectively, and declines were in Tasmania, VIC and SA.

As for the types of vehicles sold, passenger vehicles were only up 0.7% for the month, whereas the strongest gains were in “other vehicles” at 4.0%, separate from the 1.9% rise in sports utility vehicles.

Automotive Group Holdings Ltd (ASX: AHE) is a diversified automotive retail and logistics group with 150 auto and truck dealerships in WA, NSW, VIC and QLD under the Zupps brand name.  Since 2006 it has tripled revenue, and NPAT has risen from $21.2 million to $69.9 million, or a compound annual growth rate (CAGR) of 18.6%.

It has a 5.59% dividend yield and a price to book value of 1.95. Long-term debt is at $175.6 million in 2013, but with $69.9 million in net profit, debt is only 2.5 times current net profit, so it isn’t excessive and theoretically repayable in 2.5 years.

Another listed car sales company is AP Eagers Limited (ASX: APE), which has dealerships in SA, VIC, NSW, QLD and NT. In its 2012 annual report, it raised NPAT to $55.5 million from $40.6 million the year before. For its 2013 half-year results, net profit was up 22.6% at $31.4 million.

Price to book value is 1.92, similar to Automotive Holdings Group, but its dividend yield is 3.92%. Its long-term debt to net profits ratio is 3.76, based on 2012’s long-term debt at $209 million to $55.5 million in earnings. Although higher than its competitor, debt is still in a manageable range of less than five times. 2013’s full-year results should make that ratio even less, assuming annualised earnings based on the half-year report.

Foolish takeaway

Car sales usually are the beneficiaries of a growing cyclical market. Lower interest rates making financing more affordable, and if many buyers have held off in purchasing a new car for several years, an increase in disposable income will feed into new car sales.

There still is concern about unemployment creeping up, which could inhibit sales, so investors should keep an eye on RBA rate changes, as well as overall sales data from the Australian Bureau of Statistics.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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