The team at Macquarie have run the ruler over the ASX-listed vehicle retailers, and they have an overweight rating on both Eagers Automotive Ltd (ASX: APE) and luxury dealership Autosports Group Ltd (ASX: ASG).
That said, when choosing between the two, Macquarie prefers Autosports Group.
As the Macquarie team said:
We prefer ASG, as it is well placed for organic and inorganic growth underpinned by good trading conditions in luxury brands and active M&A pipeline, which could more than offset any potential softening in new vehicle sales.
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New acquisition to drive growth
And indeed Autosports Group has been on the acquisition trail recently, agreeing to buy South Australian-based Solitaire Automotive Group for about $50 million, with that deal announced in late February.
The deal involves Autosports Group acquiring Solitaire's 15 new vehicle and motorcycle dealerships, selling across 10 brands and generating about $300 million in annual revenue.
As Autosports Group said at the time:
The Solitaire Automotive Group has a more than 50 year history and operates Aston Martin, Maserati, Jaguar Land Rover, Cupra, Audi, Ducati, Volkswagen, Polestar, Volvo Cars and Zeekr dealerships in Adelaide. The purchase consideration consists of $50 million for goodwill and approximately $1 million for net tangible assets, plant and equipment. The $50 million goodwill will comprise of $25 million in cash and the remaining $25 million will be in the form of ASG shares to be issued at a price of $3.46.
Autosports Group Chief Executive Nick Pagent said Solitaire was a good fit for the group.
The Solitaire Group has meaningful scale, good growth prospects and a unique position as the sole retailer in South Australia for most of its brand portfolio. We are delighted to welcome David Smoker as a shareholder, and would like to thank the Smoker and Holst families for their goodwill through the transaction.
Autosports Group shares looking cheap
Macquarie said Solitaire had solid scale and good future growth prospects, "which suggests the acquisition would trade broadly in line with current group margins''.
They said there was also potential upside from a margin perspective as the newly acquired dealerships were integrated into the Autosports Group network.
The Solitaire deal is expected to be finalised by April and is subject to approval from the Australian Competition and Consumer Commission.
Taking all of this into account, Macquarie has a price target of $5.19 for Autosports Group shares, compared with the current price of $2.81.
Autosports Group is also paying a trailing dividend yield of 3.38%, and was valued at $578.3 million at the close of trade on Thursday.
