The Eagers Automotive Ltd (ASX: APE) share price could be poised to boom post-pandemic.
Confidence in Australia’s future economic growth remain negative as the country enters its first recession in nearly 30 years.
Despite the doom and gloom, Eagers Automotive (which changed its name from AP Eagers Ltd last month) could benefit post-pandemic.
Why Eagers could boom post-pandemic
There is no doubt that the COVID-19 pandemic has changed the way we go about our daily lives. Although some of these changes may be temporary, there are certain habits that will remain permanent.
Automotive companies like Eagers could benefit as a result of some behaviour changes.
Firstly, a changing attitude to public transport could see a surge in demand for new vehicles. With social distancing measures and personal preferences pushing consumers to avoid public transport and drive to work instead.
In addition, domestic and international border closures could see demand for air travel trickle to the automotive sector. Instead of flying interstate or overseas, consumers may opt to do a roadtrip for their next holiday.
How has the company performed thus far?
The Eagers Automotive share price has recovered quite remarkably after being sold-off earlier this year.
Shares in the company have bounced more than 205% from the low in late March.
In late April, Eagers informed shareholders that its dealerships would remain operational during the lockdown period. In addition, management reported that the pandemic had allowed the company to reduce its cost base and reshape its operations.
Eagers was also able to secure $122 million in working capital during the pandemic. This has put the company in a strong position to buy smaller, distressed dealerships.
The company released its financial report for the first half of FY20 in late August. The report headlined a 102% increase in revenue of $4.15 billion and 81% increase in earnings before interest, taxes, depreciation and amortisation (EBITDA) of $188.1 million. Car retailing sales were the main driver of revenue growth, with truck sales also aiding the bottom line.
Should you invest?
Eagers is Australia’s oldest listed automotive retail group, operating dealerships across the country.
The company has a dominant position in Australia’s automotive market and is in strong financial position. Eagers has been around for more than 100 years which also shows great longevity.
However, the automotive industry is evolving, and conditions remain bleak. The discretionary nature of motor vehicles is also prone to lower consumer spending.
In my opinion, the hypothesis of changed consumer behaviour post-pandemic is interesting. However, the proof needs to be in the pudding. I would probably pay attention to new car sales figures before investing in the Eagers share price.
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Returns as of 6th October 2020
Motley Fool contributor Nikhil Gangaram has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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