Carsales.com Ltd (ASX: CAR) shares will be in focus this morning as investors react to news it plans to sell its 50.1% stake in its underperforming Stratton car finance business.
The company did not provide an estimate of how much it expects to receive for its stake and reported that it will be held as non-current asset for sale on the balance sheet for its FY 2019 financial statements.
Carsales's core business remains its eponymous online classified advertising website that management reported has "proven resilient in the current economic environment". This is an environment that has seen new car sales fall and generally lower levels of second hand car trading over the past 12 months on the back of falling house prices and low wage growth.
Recently, Australia's two largest second-hand car dealers in AP Eagers Ltd (ASX: APE) and Automotive Holdings Group Ltd (ASX: AHG) both issued profit downgrades on the back of weaker trading conditions. Therefore it should not come as a surprise to investors that Carsales's Stratton Finance business has struggled to write as much business as expected.
Commonly, second-hand car dealers will make almost as much on the financing of sold cars as they will on the sale on the car itself which explains why the lower writing of new loans is having an impact on the whole car dealing industry.
Aside from the tougher local trading conditions, Carsales also told investors today that its international businesses in South Korea and across Latin America continue to perform well.
As a result of all the news it now expects FY 2019 profit growth to come in just 0% to 1% above FY 2018 on a real world basis, or 1% to 3% higher when excluding its stake in Stratton Finance that it proposes to sell.
So when including Stratton this translates into a net profit between $130 million to $132 million on revenue between $473 million to $475 million.
The shares edged marginally higher in opening trade to $13.89.
