Auto Trader lifted by Barclays upgrade to 'overweight'

Auto Trader got a boost on Thursday as Barclays bumped the stock up to 'overweight' from 'equalweight' and lifted the price target to 470p from 425p ahead of the full-year results on 8 June.

The bank said there are risks in the outlook for used car pricing, but it does not expect wide forecourt closures. Even if that were to happen, what matters most for Auto Trader are levels of used car stock, Barclays pointed out.

"Here a decent outlook for used car transaction volumes should be a tailwind. We have also dug into new products: part exchange, financing and new cars. We think the latter two, in particular, will become meaningful contributors."

As a result, the bank is now forecasting 10% average revenue per retailer forecourt growth in full-year 2018 and 9.5% in FY19, and it's 7% ahead of consensus earnings per share in FY18.

It noted that stock has de-rated and on a free cash flow yield is starting to look attractive. "With gradual upgrades to consensus EPS as we go through FY18E, we see opportunity to re-rate."

As far as the results next week are concerned, Barclays does not expect management to guide to double-digit ARPR growth. It expects them to guide to high single digits and then try to do better as the year goes on.

"The 1H FY18E results in autumn will be the real test for how the year is panning out."

At 0852 BST, the shares were up 6.8% to 444.40p.