Carsales.com (CRZ, $8.71. Mkt cap $2,073M) – REA result bodes well for online leaders such as CRZ. CRZ Trading Buy, PT $9.60/share.
•Last week Realestate.com (REA) announced a strong profit number, with the stock bouncing post its half year result. REA is now trading at 29x FY13 and 25x FY14 earnings, the market willing to pay for a company highly leveraged to the online transaction space. Additionally, REA has a leading share in its two major markets, which in the world of the web more often than not provides a major competitive advantage over the competition in terms of site visits and brand awareness. REA is set to achieve similar revenue growth in FY13 to that achieved in FY12, with an improving housing market able to enhance earnings.
•We believe the REA half year result has strong implications for that of carsales.com (CRZ). Like REA, CRZ is an online leader in its sector – in this instance the advertising of vehicles for sale. Its leadership has to date buffered it against competitors’ moves and alliances. Again it is the advantage that market leaders tend to maintain once they have established a website brand and traffic.
•Macro wise, the migration of print to online advertising provides still ample opportunity for the likes of CRZ. Meanwhile, new vehicle purchases in Australia continue to exhibit attractive growth - sales for January were up 11.3% YoY, following the 10.3% growth achieved for CY2012.
•CRZ achieved 21% YoY revenue growth in FY12, and the market expects 16% in FY13, and EPS growth of 18%. The business achieved strong growth in display advertising, vehicle inventory, and vehicle enquiry growth. The scalability and low capex of the business should ensure margin enhancement
•The stock is trading at a PE of 25X FY13 and 21x FY14, the discount to REA’s PE now widening to16% and 13% following the latter’s result. CRZ needs to deliver to mitigate this, and we are confident given its strong competitive position in advertising and a buoyant domestic auto market.
