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Why the Carsales share price is zooming higher today

The Carsales.Com Ltd (ASX: CAR) share price has been a positive performer on the S&P/ASX 200 Index (ASX: XJO) on Thursday.

The auto listings company’s shares are up 4% to $13.49 in early trade.

Why is the Carsales share price charging higher?

Investors have been buying Carsales’ shares on Thursday following the release of a business update.

According to the release, Carsales has implemented cost saving initiatives to mitigate the near-term financial impact of the coronavirus pandemic on its operations.

The company advised that this cost management program has been carefully balanced to support the short term performance of the business as well as its long term strategic priorities and growth agenda.

Carsales has followed the lead of many other ASX 200 companies by reducing board executive remuneration by 20% from April 1 through to June 20.

It has also stood down ~250 employees in Australia temporarily, with most of these on a partial basis. It explained that this is predominantly in external customer facing roles where activity has been impacted by changes to customers operations from government restrictions and social distancing measures.

Carsales has also reduced other discretionary costs across the business such as outdoor brand marketing.

Management notes that the company has a strong balance sheet and prudent gearing levels. At the end of March, the company had a net debt position of $355 million, a net debt to EBITDA leverage ratio of 1.6x, and ~$190 million in available cash. It believes this positions it well in the current operating environment.

Trading update.

The company advised that trading conditions in Australia have unsurprisingly weakened materially since March 10.

It explained: “The increased social distancing measures introduced by the government in the last month have impacted sales volumes across the automotive industry. This has translated to a reduction in buying and selling activity on carsales, impacting the revenue performance across operating segments.”

“Until 10 March 2020 private seller and dealer used car lead volumes were growing solidly against the prior corresponding period (pcp). Between 10 March 2020 and 21 April 2020 lead volumes have been down approximately 25% versus pcp on average, with an improved trajectory since the Easter weekend,” it added.

Though, management notes that traffic on carsales.com.au has remained resilient over the past month. It feels this is a reflection of the underlying demand that exists for buying, selling and researching cars even in this challenging environment.

Carsales’ CEO, Cameron McIntyre, concluded: “Our overriding priority continues to be the safety and wellbeing of our employees and customers around the world in these challenging times. We remain focused on managing short term performance while positioning the business to come out of the current environment in good shape. Our market leading position, strong customer proposition and diversification across geography and product supports our resilience and positions carsales well into the future.”

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended carsales.com 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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