Online second hand car marketplace Auto Trader (AUTO) falls 3.8% to 415.2p as investors seem slightly disappointed by its results for the 12 months to 31 March.

Revenue is 9% higher at £311m against the £310m consensus forecast and earnings per share are up 22% to 15.6p versus the average forecast of 15.2p.

The full year dividend is more than tripled to 5.2p.

Those figures seem decent, so why the negative share price reaction? We believe there may be some slight concern that the number of retailer forecourts on its platform is down 2% to 13,296 against the 13,388 hoped for by the consensus.

This provides some validation for a key plank of the bear case against the stock, namely that it is losing its market leading position.

IS MARKET LEADING POSITION UNDER THREAT?

Liberum analyst Ian Whittaker, who is very much on the bull side of the argument, says: ‘These results display that despite the decrease in retailer forecourts, stock on site continues to grow.

‘Given the pricing model is based on stock levels and not exclusively on number of forecourts we believe a decline in forecourts at the periphery will not undermine their competitive advantage.’

Auto Trader may also be under some pressure due to its domestic focus and jitters about the car market as today's general election puts the spotlight on an uncertain economic and political outlook.

As we discuss here, we continue to like the investment case and do not see the valuation as stretched when compared to other internet-based businesses with similarly asset-light business models.


Issue Date: 08 Jun 2017