JPMorgan puts Auto Trader on 'negative catalyst watch'

Auto Trader slumped on Tuesday as JPMorgan Cazenove placed the shares on ‘negative catalyst watch’ ahead of FY24 results in May.

JPM kept the shares at ‘underweight’ with a 608p price target.

It noted that a key premise to its downgrade to UW last year was easing momentum in the core business, a lack of financial bearing from Digital Retailing initiatives, and an unattractive valuation.

"We now see an increasingly challenging market backdrop coming to the fore - following six months of falling used car prices (accelerating to -8% in February 2024) and meaningful margin erosion for UK retailers - which we expect to temper consensus expectations on the core marketplace business," it said.

"Coupled with continued disappointments on the digital agenda - Autorama - we see building risk to consensus FY25 earnings expectations which we expect to weigh on the shares into FY24 results (May 30th) and place the shares on negative catalyst watch into the earnings season."

JPM said that while the stock has underperformed year-to-date, up 3% versus a Classifieds peer set up 9%, it sees further legs to the recent share price underperformance "with a tougher market backdrop for 2024 along with higher-than-expected losses in Autorama, both of which we expect to weigh on company consensus FY25 earnings expectations and yield a cautious guidance for the year".

The bank cut its FY25 adjusted earnings per share estimate by 2%, screening 7% below consensus, with downside risk to Autorama and the core Auto Trader margin.

"Incrementally, we expect all eyes to stay on retailer dynamics, where we see growing risk to retailer operating metrics as falling used car prices challenge profit pools," JPM said.

"While we recognise good visibility into H224, we stay cautious on FY25 as management navigates a likely softer consumer backdrop, digital retail roll-out, and challenging retailer dynamics."

At 1115 GMT, the shares were down 4.2% at 711p.