South African Digital Growth Will Drive Affordable Mobility

Key Takeaways

• Strong digital focus, network expansion, and value-oriented strategy position the company for outperformance amid rising demand for affordable used vehicles.
  
• Investments in technology, capital-light formats, and national reach drive operational efficiency, market consolidation, and sustained earnings growth.
  
• Secular industry changes, evolving consumer preferences, competitive pressures, and operational challenges threaten WeBuyCars' long-term growth, profitability, and resilience.

Catalysts

Engages in buying, distributing, and retailing pre-owned motor vehicles through their website in South Africa.

• A growing, urbanising and increasingly digital-savvy South African population is boosting the appetite for affordable mobility solutions, which aligns with We Buy Cars Holdings' strong online presence, branch network expansion, and successful push into value-oriented vehicles-positioning the company to capture above-market growth in volumes and revenue.
  
• Heightened consumer demand for value, especially among financially constrained buyers, is propelling a secular shift toward used over new vehicles, magnified by rising new car prices and increased price sensitivity; this ongoing preference underpins We Buy Cars' ability to drive revenue and expand earnings through increased transaction volumes in its core affordable vehicle segments.
  
• Ongoing investment in technology-enabled buying, valuation, and finance platforms is streamlining customer experiences and operational processes, delivering higher throughput and improved lead conversion; these advances are already translating into greater operating efficiency and better net margins due to reduced friction in buying, sales, and financing activities.
  
• Accelerated roll-out of capital-light buying pods and large-capacity supermarkets is expanding We Buy Cars' national footprint and inventory turnover, enabling increased geographic penetration and service convenience, which supports structural growth in sales volumes and associated revenue streams.
  
• The steady formalisation and consolidation of South Africa's used car market is increasing market share opportunities for well-capitalised and trusted operators like We Buy Cars Holdings, setting the stage for greater pricing power and stronger long-term earnings in a fragmented industry migrating toward digital and process transparency.

We Buy Cars Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming We Buy Cars Holdings's revenue will grow by 16.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.6% today to 4.0% in 3 years time.
• Analysts expect earnings to reach ZAR 1.6 billion (and earnings per share of ZAR 3.81) by about August 2028, up from ZAR 919.6 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 26.6x on those 2028 earnings, up from 24.2x today. This future PE is greater than the current PE for the ZA Specialty Retail industry at 8.7x.
• 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 19.52%, as per the Simply Wall St company report.

We Buy Cars Holdings Future Earnings Per Share Growth

Risks

• Increased adoption of shared mobility and ride-hailing services (e.g., Uber, Bolt) could structurally reduce private vehicle ownership demand over time, which may lead to a long-term decline in the number of used vehicles bought and sold through traditional retail channels-negatively impacting WeBuyCars Holdings' future revenues and sales volumes.
  
• Accelerating shift toward electric vehicles (EVs) globally, and likely eventual adoption in South Africa, threatens the resale liquidity and values of internal combustion engine (ICE) vehicles that constitute the bulk of WeBuyCars' inventory; this may result in aging, lower-value inventory, higher depreciation costs, and downward pressure on revenue and net margins as consumer preferences evolve.
  
• Intensifying local and international competition-including both traditional dealers and increasingly sophisticated digital/online-only platforms-may compress gross margins and erode WeBuyCars' market share, especially if price transparency or pricing wars increase; this would threaten long-term earnings growth and persistent profitability.
  
• Rising working capital and capital expenditure requirements, especially as the company aggressively expands its branch network, supermarket footprint, and inventory; if inventory turnover slows due to secular or cyclical headwinds (e.g., consumer affordability issues, supply constraints, or regulatory shocks), this could elevate holding costs and strain cash flows, thereby pressuring net margins and limiting the ability to sustain dividends or growth investments.
  
• Supply volatility of quality used vehicles-exacerbated by longer vehicle holding periods by consumers, the aging vehicle parc, and inconsistent new vehicle sales-could result in unpredictable sourcing costs and availability, increasing the risk of mismatched or obsolete inventory, which would negatively affect revenue growth, operating efficiency, and overall earnings consistency.

Valuation

• The analysts have a consensus price target of ZAR59.293 for We Buy Cars Holdings based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ZAR39.9 billion, earnings will come to ZAR1.6 billion, and it would be trading on a PE ratio of 26.6x, assuming you use a discount rate of 19.5%.
• Given the current share price of ZAR53.36, the analyst price target of ZAR59.29 is 10.0% 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.