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Carsales share price up 5% following solid trade update

The Carsales.Com Ltd (ASX: CAR) share price is up almost 5% this morning following its latest market trading update. The Carsales share price has rallied strongly since late March, regaining most of its losses during the first wave of the coronavirus pandemic.

Update on impending FY 2020 results

Carsales’ adjusted total revenue is predicted to be flat and in the range of $419 million to $423 million for FY 2020. That compares with total revenue of $418 million for FY 2019. Adjusted revenue included $26 million of revenue billed but not charged due to the COVID-19 support package. Reported revenue, when this figure is not included, would actually result in growth of between -5% to -6%.

Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) is, however, expected to show modest growth for FY 2020. Carsales estimates that it will be in the range of $228 million to $232 million. If achieved, that would be growth in the range of 5% to 6% for the full financial year.

Lead and traffic volumes improving in Australia, but inventory declines

Carsales pleasingly reported that lead volumes and traffic for Australia continue to improve, since its last market update. The easing of social distancing measures is definitely helping in this respect. Lead volumes for the period between 22 April and 16 June were reported to have grown strongly over the prior corresponding period in 2019.

Total inventory has, however, actually declined over the prior 6-week period. Carsales noted that Australian dealers are facing difficulties with regards to acquiring new and used car stock. This is due do the challenging current environment.

However, on a positive note, there has been a significant reduction in the time required to sell its stock. This is due to the reduction of social distancing restrictions. Many people are now looking to add an additional car to their household to avoid using public transport.

Korea performs well, Brazil remains challenged

In Korea, Carsales’ ownership in SKEncar (a secondhand vehicle company) continues to perform well. Inventory, listing volumes and traffic are pleasingly all up.

Brazil, however, is a different story. This is due to the escalation of the COVID-19 outbreak over there.

Will the Carsales share price continue its rise?

The company’s share price has regained most of the losses that it suffered during the initial phase of the outbreak. It is now trading at $17.76  after being as low as $10.47 in late March.

Where Carsales shares continue to from here will be interesting, in any case. 

This market update appears to be reasonably solid considering the challenging market conditions. However, its share price is not looking as cheap as it was back in March.

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Motley Fool contributor Phil Harpur owns shares of Limited. The Motley Fool Australia has recommended 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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