The Carsales.Com Ltd (ASX: CAR) share price could come under pressure on Wednesday following the release of a soft half year result.
For the six months ending December 31, Carsales posted a 17% increase in revenue to $235 million, an 8% lift in EBITDA to $98 million, and an 82% decline in reported net profit after tax to $11.1 million.
The sharp decline in Carsales' reported net profit after tax was primarily due to the impairment of its investment in Stratton Finance. In December the company advised that certain external factors had the potential to adversely impact the valuation of the Stratton Finance CGU, including ASIC legislative changes on car financing which came into effect in November 2018 and the continued tight credit market conditions.
On an adjusted basis, net profit after tax came in 2% lower on the prior corresponding period at $60.2 million or 24.7 cents per share.
What were the drivers of the result?
The company's key Online Advertising segment delivered revenue growth of 3% to $142 million during the half. This comprised Dealer revenue growth of 8% to $75 million, Private revenue growth of 12% to $41.5 million, and a 16% decline in Display revenue to $29.9 million.
Management advised that the latter was impacted by some execution challenges as well as a more difficult advertising environment, given the current subdued new car market. Segment EBITDA fell 2% to $73 million.
Carsales' Data, Research, and Services segment achieved revenue growth of 6% to $21.8 million. This solid revenue growth reflected continued demand for Data, Research and Services from OEMs. In addition to this, its extended warranty product has attracted strong interest since its introduction into the market. Segment EBITDA increased 6% to $12.6 million.
The biggest driver of revenue growth during the period was the Carsales Asia segment. Its revenue increased from $1.8 million in the prior corresponding period to $31.3 million. Though, this was due largely to the SK Encar acquisition. Segment EBITDA came in at $14 million.
Supporting this growth was the Carsales Latin America segment which grew revenue by 16% to $4.6 million. Segment EBITDA was negative $3.1 million.
As expected, the company's Finance and Related Services segment acted as a drag on its result. It posted a 4% decline in revenue to $30.9 million. Segment EBITDA fell 72% to $1.4 million.
Outlook.
CEO, Cameron McIntyre, appeared cautious on the second half.
He said: "We continue to monitor our performance and market conditions in each market in which we operate. Assuming these remain consistent, we anticipate revenue, EBITDA and Adjusted NPAT growth will be moderate in the second half of FY19."
Should you invest?
I thought this was a very disappointing half from Carsales with the majority of growth coming from the SK Encar acquisition.
And with management suggesting that the second half could be softer, I wouldn't be a buyer of its shares at this point.
Instead I would buy online listings peers REA Group Limited (ASX: REA) and SEEK Limited (ASX: SEK).
