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UBS warns Cabcharge Australia Limited’s (ASX:CAB) Uber advantage is over

The golden run in the share price of Cabcharge Australia Limited (ASX: CAB) could be coming to an end with UBS downgrading the stock and warning that troubles at Uber may not provide the company as big an advantage as some might think.

The taxi payment solutions provider fell 2.2% to $2.23 in afternoon trade when the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index slipped 0.5%, although Cabcharge is still 30% ahead in the last three months compared to a 6% gain by the broader market.

This puts the stock on par with other small cap stars like oil explorer FAR Ltd (ASX: FAR), sterilisation equipment maker Nanosonics Ltd. (ASX: NAN) and apparel retailer Noni B Limited (ASX: NBL).

No large cap stock has managed to rally by more than 30% over the same period with gaming machine maker Aristocrat Leisure Limited (ASX: ALL) coming the closest with a 29% gain and takeover target APA Group (ASX: APA) right behind with a 24% uplift.

Investors have been buying back into Cabcharge on signs that ride-sharing company Uber is losing popularity among users and drivers.

Recent media reports suggested that Uber drivers were getting less than minimum wage after expenses, while customers are increasingly being put off by Uber’s surge pricing.

UBS has scrutinised the taxi and ride share market in Australia and believes that Uber’s momentum has slowed even though its app still accounted for almost half of the mobile downloads in the month of June (compared to 71% in the 2017 December quarter).

However, Cabcharge only enjoyed a minimal increase in market share and most of its gains came from other taxi-only apps.

It seems that Uber’s market share loss is going to other ride-share competitors like Ola and Taxify, while Uber’s Chinese rival Didi Chuxing recently launched in Melbourne.

“Momentum appears to have slowed for Uber in both app downloads and share of UBS taxi spend,” said UBS, which marked down Cabcharge to “sell” from “neutral”.

“However, CAB has only recorded a minimal uplift as a result – with the majority of the benefit going to competitors.”

This isn’t to say that Cabcharge’s earnings momentum won’t improve in the near-term, which is why the broker upped its price target to $2.15 from $1.65 a share, although UBS warns that the stock could be cum-downgrade.

UBS believes consensus forecasts are too bullish and will need to be adjusted lower. Based on the broker’s estimates, the stock is trading on a FY19 price-earnings (P/E) multiple of around 17 times, and that’s too rich for my liking.

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Motley Fool contributor Brendon Lau owns shares of Aristocrat Leisure Ltd. The Motley Fool Australia owns shares of and has recommended Nanosonics Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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