Auto Trader dips on neutral downgrade from Goldman Sachs

Goldman Sachs has downgraded Auto Trader from 'buy' to 'neutral' as the quality of exposure looks largely priced in.

The investment bank noted it had removed the car classified business from its pan-Europe buy list on Wednesday.

It also revised its 12 month price target to 415p from 335p.

“Since being added to the Buy List on April 30, 2015, the shares are up c.42%, outperforming the FTSE World Europe and STOXX 600 by c.50%,” Goldman Sachs noted.

“This we believe was driven by a rerating to 22.1x CY16E EV/EBITDA with the market appreciating the company’s dominant position in a stable industry with low competitive threats.”

It also said the company’s high market share, mobile dominance, strong relationships with professional users and a low level of competition implies it will be able to maintain its dominant position.

“Solid underlying trends (acceleration of new car sales over the last three years and macro recovery) and diversity of efficient monetisation tools for professional users will allow the company achieve 9% average revenue growth in the next five years, and high operating leverage will lead to 12% EBITDA growth, on our estimates.

“That said, monetisation in the UK vehicle online classifieds market is among the highest in the world, limiting upside risks to our top-line growth estimates.”

Shares in Auto Trader dipped on the news, dropping 5p (1.31%) to 376.10 at 1102 GMT.