Urbanization And Digital Retail Will Boost Auto Sales In Australasia

Key Takeaways

• Operational transformation, property consolidation, and scalable site models could drive significant improvements in profitability and sustainable earnings beyond current analyst expectations.
  
• Partnerships with new energy OEMs, leadership in used car retailing, and digital expansion position Eagers for strong market share gains and sustained long-term growth.
  
• Exposure to regulatory shifts, changing consumer habits, and disruptive sales models threatens Eagers' traditional revenue streams and margins, challenging their adaptation and regional resilience.

Catalysts

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

• While analyst consensus recognizes record productivity and stable margins, the scale and ongoing operational transformation at Eagers has the potential to drive mid
• to long-term net margins materially above historical levels, with company guidance targeting up to 5 percent return on sales; this suggests current margins may significantly understate future sustainable earnings.
  
• Analysts broadly agree that strategic property consolidation boosts financial stability, but few appreciate that the Osborne Park model-integrating multiple brands onto a single site-could be replicated at scale across Australia, unlocking step-change reductions in cost base and doubling profitability per site, which would result in both higher net margins and stronger earnings growth than currently expected.
  
• Eagers' unique scale and privileged relationships with a broad portfolio of high quality and new energy OEMs, especially as a key partner for market-disrupting entrants like BYD, positions the company for outsized market share and volume gains as new brands and electric vehicle adoption accelerate, driving sustained revenue outperformance over coming years.
  
• The easyauto123 business, currently outperforming even global best practices in used car retailing with proprietary sourcing and technology, is at an early stage of both footprint expansion and penetration of trade-in opportunities, suggesting that a rapid ramp-up in revenue and profit contribution is plausible and not yet reflected in analyst forecasts.
  
• Increasing urbanization and affluence in Australia and New Zealand, combined with Eagers' leadership in digitizing the auto retail experience, expands its addressable market and average transaction values, pointing to a powerful long-term tailwind for revenue and margin growth as consumer demand and online engagement rise.

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 9.2% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 1.7% today to 2.5% in 3 years time.
• The bullish analysts expect earnings to reach A$398.4 million (and earnings per share of A$1.54) by about September 2028, up from A$207.8 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 23.9x on those 2028 earnings, down from 33.7x today. This future PE is lower than the current PE for the AU Specialty Retail industry at 26.2x.
• 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 8.8%, as per the Simply Wall St company report.

Eagers Automotive Future Earnings Per Share Growth

Risks

• The accelerating transition towards electric vehicles risks eroding Eagers Automotive's core revenue stream from internal combustion engine cars, and while management highlights their strong NEV market share, increasing regulatory pressure and rapid EV adoption could outpace the company's ability to adapt, placing long-term pressure on both revenue and earnings.
  
• The rise of direct-to-consumer sales models from major automakers threatens to bypass traditional dealers, undermining Eagers' market share, pricing power, and gross profit, with their reliance on OEM partnerships leaving them vulnerable if automakers rationalise distribution or shift away from franchise models.
  
• Heavy concentration in Australia and New Zealand exposes Eagers to region-specific economic downturns, interest rate cycles, and government policies; this geographic risk could result in sustained periods of revenue and earnings weakness during domestic shocks or unfavorable regulation.
  
• With a high fixed cost base tied up in a vast physical dealership network, growing digital retail adoption and lower private vehicle ownership due to urbanisation and mobility alternatives mean Eagers' net margins may face increasing downward pressure if their property optimisation initiatives cannot sufficiently offset declining foot traffic.
  
• Accelerating technological change including autonomous and connected vehicles increases replacement cycle times and customer uncertainty, while Eagers' current dependence on a mix of new and used vehicle sales could dampen long-term volume growth, limiting upside to both top-line revenue and bottom-line profitability.

Valuation

• The assumed bullish price target for Eagers Automotive is A$28.62, 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$28.62, and the most bearish reporting a price target of just A$14.0.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be A$15.9 billion, earnings will come to A$398.4 million, and it would be trading on a PE ratio of 23.9x, assuming you use a discount rate of 8.8%.
  
• Given the current share price of A$27.12, the bullish analyst price target of A$28.62 is 5.2% higher. 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.