Digital Transformation And Urbanisation Will Unlock New Retail Frontiers

Key Takeaways

• Structural productivity improvements and digital integration are expected to deliver outperformance in margins and earnings, outpacing current analyst and market valuations.
  
• Strategic real estate ownership and dealership expansion position Eagers to capture significant long-term growth from EV trends, industry consolidation, and urbanisation tailwinds.
  
• Disruptive changes in vehicle technology, OEM sales strategies, and online competition threaten Eagers Automotive's core model, margins, and long-term revenue stability.

Catalysts

Owns and operates motor vehicle dealerships in Australia and New Zealand.

• Analyst consensus sees stable net margins underpinned by productivity and technology, but this likely understates Eagers' structural margin upside; management has identified a further 1.9 percent improvement to net margins beyond already sector-leading levels, suggesting medium-term earnings could materially exceed market expectations as integration, process redesign, and digitisation accelerate.
  
• Analysts broadly agree Eagers' property acquisitions solidify its asset base and enable dealership growth, but market valuations overlook the strategic flexibility this real estate confers; as urbanisation and population growth drive sustained demand, the redeployment and intensification of these owned assets will unlock continual revenue and margin tailwinds through both higher dealership throughput and land value appreciation.
  
• The rapid expansion of the national BYD retail joint venture-targeting ownership of approximately 65 to 70 percent of an expected 100 locations by mid-2025-is poised to capture a disproportionate share of the accelerating hybrid and electric vehicle boom, with new model launches and network scale setting up a step-change in revenue and lift in blended returns as high-margin service, parts, and used vehicle income expand to rival core operations.
  
• Eagers' deep integration across digital and physical channels, coupled with proprietary tech and unique used vehicle sourcing advantages from its franchise portfolio, positions easyauto123 to far outpace industry and global benchmarks in the used car segment, driving compound revenue growth and counter-cyclical earnings resilience as digital retail penetration deepens.
  
• With industry rationalisation and consolidation accelerating-prompted by regulatory changes and rising operational complexity-Eagers' status as the partner of choice for both established and new OEMs at scale makes it the primary beneficiary of future industry rollups and overseas expansion opportunities, setting the stage for long-term market share gains, margin accretion, and capital-light, high-return growth.

Eagers Automotive Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Eagers Automotive compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Eagers Automotive's revenue will grow by 10.4% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 1.8% today to 2.4% in 3 years time.
• The bullish analysts expect earnings to reach A$357.5 million (and earnings per share of A$1.41) by about August 2028, up from A$205.1 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 19.2x on those 2028 earnings, down from 26.0x today. This future PE is lower than the current PE for the AU Specialty Retail industry at 21.9x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.08%, as per the Simply Wall St company report.

Eagers Automotive Future Earnings Per Share Growth

Risks

• The accelerating shift towards electric vehicles and alternative mobility solutions, such as car-sharing and subscription services, risks eroding demand for traditional internal combustion engine vehicles, potentially leading to a decline in Eagers Automotive's core revenue base in the long term.
  
• The continued rise of direct-to-consumer sales models by OEMs, as seen with brands like Tesla and the reconsideration of go-to-market strategies by established automakers, threatens to bypass traditional dealerships and could reduce Eagers Automotive's sales volumes and compress gross and net profit margins.
  
• Eagers' heavy reliance on a limited set of key OEM partnerships, particularly legacy brands, leaves it exposed to abrupt changes in manufacturer strategy, such as a shift to agency or direct sales models, which could destabilize long-term revenue and earnings stability.
  
• The company's legacy dealership model, with significant fixed property and operating costs, creates high operating leverage, leaving it vulnerable to margin compression and lower earnings if sales volumes fall or if the shift towards online sales weakens the value of physical dealership assets.
  
• Increasing competition from online automotive marketplaces and digitally native competitors, combined with heightened regulatory requirements on lending and emissions, is likely to raise compliance costs and compress used car margins, negatively impacting the company's net margins and growth in future years.

Valuation

• The assumed bullish price target for Eagers Automotive is A$20.6, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Eagers Automotive's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$20.6, and the most bearish reporting a price target of just A$13.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be A$15.1 billion, earnings will come to A$357.5 million, and it would be trading on a PE ratio of 19.2x, assuming you use a discount rate of 9.1%.
• Given the current share price of A$20.65, the bullish analyst price target of A$20.6 is 0.2% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.