Outmoded Physical Retail Will Limit Future Profit Despite EV Trends

Key Takeaways

• Shifts toward electric vehicles, direct sales, and agency models are weakening dealership roles, pressuring Autosports Group's revenue streams and profit margins.
  
• Reliance on luxury brands and high fixed costs heightens vulnerability to market downturns and digital disruption, increasing earnings volatility and operational risks.
  
• Strategic expansion in premium electric vehicles, resilient revenue, and acquisitions position the company for long-term growth and profitability amid evolving luxury automotive trends.

Catalysts

Engages in the motor vehicle retailing business in Australia and New Zealand.

• The ongoing shift toward electric vehicles and increasing adoption of direct-to-consumer sales models by manufacturers such as Tesla and BYD are expected to undermine the traditional dealership role, eroding Autosports Group's ability to capture gross profit per unit as more sales bypass dealerships entirely, putting prolonged pressure on both top-line revenue and gross margins.
  
• Accelerating urbanisation, combined with declining vehicle ownership rates driven by improved public transit and the rise of mobility-as-a-service solutions, is likely to drive down demand for luxury vehicles in major urban markets. This trend could restrict volume growth and lead to stagnant or declining revenues, particularly in Autosports Group's core urban dealership locations.
  
• The group's overreliance on premium and luxury brands concentrates exposure to discretionary spending cycles and brand-specific risks. In economic downturns or periods of luxury segment weakness, Autosports would face outsized earnings volatility and shrinking net margins, as evidenced by the current period's rapid profit decline despite cost controls.
  
• High fixed operating costs arising from a network of large showrooms and physical infrastructure will increasingly become a burden as online sales channels outpace traditional retail, compressing net margins further and reducing operational flexibility as industry digitisation accelerates.
  
• The increasing adoption of agency models and fixed pricing by manufacturers diminishes dealer control over pricing and strips out high-margin inventory trading and discounting gains, causing a structural reduction in Autosports Group's revenue and profitability per vehicle sold, with persistent long-term implications for earnings power.

Autosports Group Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Autosports Group compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Autosports Group's revenue will grow by 5.7% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 1.3% today to 1.6% in 3 years time.
• The bearish analysts expect earnings to reach A$50.9 million (and earnings per share of A$0.22) by about August 2028, up from A$36.1 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 bearish analyst cohort, the company would need to trade at a PE ratio of 9.3x on those 2028 earnings, down from 15.1x today. This future PE is lower than the current PE for the AU Specialty Retail industry at 23.4x.
• Analysts expect the number of shares outstanding to grow by 0.71% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.53%, as per the Simply Wall St company report.

Autosports Group Future Earnings Per Share Growth

Risks

• Autosports Group is strategically expanding its footprint in premium and luxury electric vehicle brands, such as Polestar and Zeekr, aligning with the global electrification trend, which could enhance long-term revenue as demand for luxury EVs grows.
  
• The company demonstrated a resilient performance relative to the broader luxury market, maintaining stronger revenue and managing significant inventory reduction, indicating operational flexibility that may support net margins and earnings recovery as market conditions stabilize.
  
• Consistent investment in high-margin aftersales departments, including service, parts, and collision repair, has shown robust organic growth, providing diversified, resilient income streams that could stabilize overall profitability even if new vehicle sales soften.
  
• Autosports Group's strategic acquisitions, including the integration of Stillwell Motor Group and the addition of complementary premium brands, are increasing scale and market share, potentially driving revenue and operating leverage over the longer term.
  
• Strong relationships with leading OEMs, wide coverage of luxury and EV brands, and a disciplined capital management strategy suggest the company is well placed to capture upside from any cyclical recovery in the luxury automotive sector, with potential upside to both revenue and net profit margins as macroeconomic headwinds subside.

Valuation

• The assumed bearish price target for Autosports Group is A$1.66, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Autosports Group's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$2.82, and the most bearish reporting a price target of just A$1.66.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be A$3.2 billion, earnings will come to A$50.9 million, and it would be trading on a PE ratio of 9.3x, assuming you use a discount rate of 11.5%.
• Given the current share price of A$2.69, the bearish analyst price target of A$1.66 is 62.0% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• 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.