Pole position LatAm Autos (LAA) is an online automotive classifieds business with assets currently across four Spanish speaking primary markets in Latin America. LAA seeks to capitalise on a substantial opportunity to become the dominant regional site owner in the automotive classifieds vertical. LAA’s sites are market leaders in their respective countries by listings and/or traffic, creating a strong base upon which to build. With expanding dealer and consumer penetration, we see the LatAm network becoming a powerful online advertising channel for auto manufacturers and others across the region. We initiate coverage on LAA with a Speculative Buy and a DCF driven target price of 41c per share, implying ~44% upside to the current price.
Key strengths and opportunities of an investment in LAA are:
Leading position: With combined 158k listings (Sep-15) and 5.3m monthly unique visits (Jun-15), LAA is a leading player in its markets and the region.
Replicating proven business models: We have seen auto classifieds shift online in developed countries quickly as the vertical is a natural fit for online advertising by virtue of the consumer desire to compare the nuances of listings and price discovery. LAA is in a position to replicate proven business models.
Exposure to strong structural trends in growing markets: LAA operates in markets characterised by (i) growing populations, (ii) growing GDP per capita and middle class, (iii) increasing internet and mobile penetration, (iv) shifting advertising spend online and (iv) rising vehicle ownership rates.
Unified platform: All LAA sites operate on an in-house, centrally developed technology platform which can cost effectively support rapid traffic and listing growth, thereby fostering strong operating leverage. We forecast LAA’s EBITDA margin to reach 48% by CY24, still below peer averages at +50%.
Strategic value: With LAA holding leading assets across the region’s largest markets, we see significant strategic value in LAA which could appeal to international classifieds or online players as a one-stop entry to Latin America.
Valuation & Price Target
Our 12-month price target for LAA is 41c per share, based on a roll forward of our risk-weighted (20%) DCF valuation (WACC 12.5%, terminal growth 5.5%). Key Risks
Key risks include (i) competition from auto and general classifieds, (ii) monetisation delays, (iii) cost of building market share, (iv) integration risk, and (v) currency risk.
LAA Price at posting:
37.0¢ Sentiment: Buy Disclosure: Held
