Auto Trader shares drop despite bullish outlook

(Sharecast News) - Shares in Auto Trader tanked on Thursday despite the new and used car platform delivering a confident outlook alongside its annual results, with the stock pulling back after a strong surge since the start of April. The company, which continues to deal with supply constraints as cars sell faster than at any time over recent years, reported that group revenues rose 5% to £601.1m over the 12 months to 31 March.

Results were driven by 7% growth at the core Auto Trader platform to £564.8m, which outweighed a 12% decline in sales at the van-leasing division Autorama to £36.3m.

Group operating profits rose 8% to £376.8m, supported by an increase in group operating profit margins to 63% from 61% the year before.

"Despite broader macroeconomic uncertainties, the UK car market is in good health and we continue to deliver against our strategy to improve car buying and retailing," said chief executive Nathan Coe.

Despite the confident outlook, the stock was down 12% at 793.6p by 0842 BST, having surged by nearly 30% over the past seven weeks.

Richard Hunter, head of markets at Interactive Investor, said Auto Trader's results were "middle of the road" by historic standards, which could be the reason for Thursday's sharp share price fall.

"The challenges to the stock supply have not yet been addressed and in addition, the Financial Conduct Authority's investigation into motor finance practices is something of an overhang on the stock," he said.

Regarding trade tariffs, Auto Trader said that while the duties will likely impact OEMs, the effect on the UK auto industry could be "favourable" if manufacturers see the country as an increasingly attractive location to sell new cars.

Nevertheless, the company said it continues to see "strong levels of demand" for used cars, with a record number of cross-platform visits and minutes spent on Auto Trader.

Meanwhile, the recent UK-US trade deal and the government's plans to soften the Zero Emission Vehicle mandate mean that new car registration volumes should be "well supported over the next two to three years", it said.

"We remain confident in the outlook for the business given our strong market position, the value we deliver for customers, and our unique data and technology capabilities," Coe added.