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Could AP Eagers Limited drive your portfolio higher?

What: Automotive retailer AP Eagers Limited (ASX: APE) has once again produced a very credible set of results in its interim profit report. For the six months ending 30 June 2014 the group reported a 2% rise in revenue to $1.375 billion which flowed through to a 6% rise in profit to a record $33.3 million.

So what: The solid results were achieved despite Australia recording a 2.4% fall in new motor vehicle sales in the first half of calendar year 2014. AP Eagers’ growth in revenue can largely be explained by the benefit of contributions from recent acquisitions.

Highlights from the results included a slightly lower gearing level, a rise in the interest cover and an improvement in the EBITDA margin from 4.5% to 4.6% over the previous corresponding period (pcp).

The company also drew investors’ attention to the fact it has raised its stake in listed peer Automotive Group Holdings Ltd (ASX: AHE) to 19.9%. This strategic stake is currently worth over $250 million.

Now what: Over the past 12 months the share price of AP Eagers has rallied nearly 24%, in comparison the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) has gained just under 10%. The results over the past five years are even more impressive with the stock gaining 220%, compared with a gain of 25% from the index.

The interim profit result equated to earnings per share (EPS) of 18.7 cents per share which was also a new record. Management has commented that it expects the second half to be in line with the first half on the assumption that the current macro-economic and industry conditions don’t change. If this forecast proves accurate, then annualising the interim EPS suggests the stock is trading on a price-to-earnings ratio of 15.3. Given the company’s track record of impressive shareholder returns at this pricing AP Eagers is starting to look very interesting.

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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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