Shares in Eagers Automotive Ltd (ASX: APE) are leading falls on the S&P/ASX 200 Index (ASX: XJO) today, but the reason for the fall is a positive in a way.
You might recall the $1.04 billion deal the company announced in early October, under which Eagers would acquire a 65% controlling stake in CanadaOne Auto Group.
Image source: Rivian Automotive
New shares issued
As part of that deal, Eagers raised $143 million in institutional capital raising and also made a strategic placement to Mitsubishi Corporation at $21 and $18 per share, respectively.
Eagers' retail shareholders were also able to get in on the action, with the company offering them the chance to subscribe for up to $100,000 worth of new shares at the $21 issue price.
This was a steep bargain to the vehicle dealer's share price at the time the deal was announced and remains so, with Eagers' shares closing at $34.42 on Monday.
But today is the first day those shares can be traded, and therefore the first day shareholders can sell them off and make a windfall gain.
This could explain why Eagers is leading the falls among ASX 200 companies on Tuesday, with the Eagers share price 5.7% lower at $32.45.
That said, even if some shareholders are selling off their shares to make an easy buck, it seems not too many are taking advantage of this trade, with just 243,669 shares changing hands by about noon, worth $7.9 million.
Eagers shares look well-priced
Brokers have run the ruler over the CanadaOne deal, and generally see it as a good way for Eagers to break into the North American market.
In their most recent research note on the company, the team at RBC Capital Markets rate the shares as sector perform, with a price target of $32. This suggests they believe the shares are fairly valued at today's levels.
The RBC team cited several reasons for their confidence in Eagers, not least the improvement in domestic conditions for new vehicle sales.
Australia's macro backdrop is turning increasingly favourable for auto demand, with rising house prices, improving household finances, resilient labour conditions, and anticipated rate cuts. These macro tailwinds should sustain positive momentum in vehicle turnover and reinforce an ongoing recovery in automotive demand as consumer confidence rises and borrowing capacity increases through 2026.
RBC says Chinese electric vehicle maker BYD, which Eagers sells in Australia, "continues to outperform expectations, providing Eagers with a structural tailwind as EV adoption accelerates".
And the used vehicle market is also benefiting from higher clearance rates, "with our feedback from dealers suggesting it will be a key driver for gross profit into FY26, where new vehicles may be more challenging".
