The Autosports Group Ltd (ASX: ASG) share price raced to it highest level this year on signals that the worst may be over for the luxury auto dealer group.
The ASG share price jumped 8.8% to $1.36 during lunch time trade when the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index dipped 0.2%.
Its peers are revving up too. The AP Eagers Ltd (ASX: APE) share price and Automotive Holdings Group Ltd (ASX: AHG) share price jumped around 3% each at the time of writing on hopes that rebounding property prices will make consumers feel confident enough to shell out for a new vehicle.
Decent results in a tough market
While Autosports' FY19 earnings before interest, tax, depreciation and amortisation (EBITDA) fell 15.2% to $50.5 million, the fact that the group managed to lift sales by 0.1% (0.2% on an adjusted basis) to $1.69 billion is not a bad outcome given the many headwinds buffeting the industry.
What's more, conditions in the second half of FY19 are improving as the group overcomes a number of one-off events that dragged on the first six months of the financial year – namely shipment delays due to the new Worldwide Light Vehicle Testing Procedure (WLTP) and transport ships being quarantined due to Brown Marmorated Stink Bugs.
When you factor in predictions by SQM Research that the Melbourne and Sydney residential property markets will grow by double digits as soon as early next year as reported in the Australian Financial Review, you can understand why investors are jumping onto the Autosports share price.
There's a strong link between sale of luxury cars and property prices and this is one reason why Autosports thinks conditions have bottomed for the group.
Outlook starting to brighten
It is expecting new car sales to "gradually improve" through FY20 and it highlighted like-for-like sales growth opportunities for brands like Audi and Mercedes that were impacted by the WLTP issue to improve in the current financial year.
It's service and parts business, which has been performing relatively well in FY19, should continue to perform and management is on the lookout for further acquisition opportunities.
The group declared a final dividend of 3 cents a share to take its full year payment to 5 cents a share. This compares to the 9 cents a share that the group declared in FY18.
Autosports owns a range of prestige dealerships like BMW, Audi, Mercedes and Maserati. It also owns used car dealerships and this market is twice the size of the new car market.
Despite the big jump in the stock today, Autosports has lost around 15% of its value over the past year when the All Ordinaries (Index:^AORD) (ASX:XAO) index gained around 2%.
If sales of luxury cars start to take off again with the housing recovery, the stock is likely to outperform.
