International Expansion And Automation Investments Will Strengthen Market Position In Europe's Automotive Aftermarket

Key Takeaways

• Inter Cars' significant sales growth and market consolidation in Europe suggest successful organic expansion, enhancing future revenue prospects.
  
• Strategic investments in automation and international expansion could optimize processes, increase market share, and improve overall earnings.
  
• Increased competition, regulatory challenges, and financial market fluctuations may pressure Inter Cars' margins, necessitating adaptation and posing risks to revenue growth.

Catalysts

Distributes spare parts for passenger cars and trucks.

• Inter Cars has achieved a substantial sales dynamic of 14.5% in the European market, which is almost double the growth of its competitors. This exceptional sales growth suggests that Inter Cars is effectively consolidating the market, particularly through organic growth rather than relying on riskier M&A strategies, potentially boosting its future revenue.
  
• The company is expanding its subsidiary network and direct sales in overseas markets, with 34 new subsidiaries opened in foreign countries. This international expansion is likely to drive higher revenue growth as these markets mature and contribute more significantly to the company's overall sales.
  
• Inter Cars is investing heavily in warehouse robotization and digital transformation, with new facilities planned in Poland and Romania. These efforts in automation are expected to optimize processes and reduce costs, potentially improving net margins and overall earnings.
  
• The increase in imports of used cars, particularly those with combustion engines or hybrids, aligns well with Inter Cars' core market, given these vehicles require regular maintenance and aftermarket parts. This trend is likely to bolster future revenue as these vehicles age and require more frequent repairs.
  
• Market consolidation in Europe, which Inter Cars is positioned to lead, is expected to improve industry profitability over time. As a dominant player in this consolidation process, Inter Cars could experience increased market share and enhanced net margins by benefiting from economies of scale.

Inter Cars Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Inter Cars's revenue will grow by 9.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.7% today to 4.4% in 3 years time.
• Analysts expect earnings to reach PLN 1.1 billion (and earnings per share of PLN 68.36) by about August 2028, up from PLN 722.7 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as PLN994.8 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 11.0x on those 2028 earnings, down from 11.3x today. This future PE is lower than the current PE for the PL Retail Distributors industry at 15.6x.
• 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 10.13%, as per the Simply Wall St company report.

Inter Cars Future Earnings Per Share Growth

Risks

• Inter Cars faces increased market competition due to ongoing industry consolidation, which could pressure margins and reduce pricing power, impacting net earnings.
  
• The European Green Deal and rapid industry transformation in favor of electric vehicles (EVs) present challenges that might slow down revenue growth and require substantial adaptation investments.
  
• Fluctuating exchange rates, especially the strengthening of the Polish zloty, have led to price reductions of goods purchased in euros, impacting gross margins.
  
• High inflation and the weakened purchasing power of consumers may cause postponements in car repairs, negatively affecting revenues and sales volumes.
  
• Inventory challenges, including past surpluses leading to the necessity for sell-offs, could impact short-term gross margins and overall financial health.

Valuation

• The analysts have a consensus price target of PLN664.48 for Inter Cars based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of PLN750.0, and the most bearish reporting a price target of just PLN612.4.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be PLN25.9 billion, earnings will come to PLN1.1 billion, and it would be trading on a PE ratio of 11.0x, assuming you use a discount rate of 10.1%.
• Given the current share price of PLN576.0, the analyst price target of PLN664.48 is 13.3% higher.
• 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.