Jefferies initiates coverage on 'kingmaker' Auto Trader at 'hold'

Analysts at Jefferies initiated coverage on classified advertising business Auto Trader at 'hold' on Wednesday, noting that its digital rebirth had been so well executed that it had seen the firm be anointed the UK's "automotive Kingmaker", a moniker the broker said came with many enviable traits.

Jefferies said Auto Trader's reinvention as a digital business, which saw it harness its 40-year roots in used cars to "erode the information asymmetry car retailers used to habitually exploit", had made its pre-eminence "inimitable and therefore, probably impassable".

Looking forward, the broker said Auto Trader's Horizon 1 project would be "a solid source" of high-single digit earnings per growth, while its Horizon 2 activities would likely be a source of upside pressure from 2021 onwards.

However, with neutral near-term earnings risk and a top quartile price/earnings multiple, Jefferies opted to initiate its coverage on Auto Trader at 'hold' with a target price of 450p.

"While Auto Trader has many enviable traits (growth, margin expansion, exceptional cash flow generation, low leverage)," the analysts' discounted cash flow model produced a price target of 450p, which only put the recommendation at 'hold'.