JPMorgan sees scope for Auto Trader to underperform

"With all eyes on retailer dynamics, we see growing risk to retailer operating metrics as falling used car prices challenge profit pools," it said.

"With an accelerated decline in UK used car prices, falling 8% YoY in January, there remains a growing number of vehicles being priced below their market value leaving a £30m lost profit potential for retailers through January alone."

Against this backdrop, JPM said the key risk for Auto Trader remains downside risk to retailer numbers, and that it expects industry dynamics to become increasingly competitive through 2024 with falling prices driving pressure to margins/returns - currently at all-time-highs - and potentially triggering consolidation/closures.

"Despite the recent underperformance over the past six months we continue to find relative valuation unattractive with the stock trading on 16x EV/EBITDA 25E for +6% CAGR25-27E versus Classified Peers on 11x for +10% CAGR," the bank said.

"While we stay cautious on Classifieds through 2024 - we see scope for Auto Trader to underperform as concerns build on retailers, with downside risk to company-consensus 2025E."

JPM rates Auto Trader at ‘underweight’ with a 623p price target.