The AP Eagers Ltd (ASX:APE) share price surged almost 8% in morning trade after being included in the S&P/ASX 200 (INDEXASX: XJO) as part of the quarterly rebalance of the S&P/ASX Indices. AP Eagers shares have since pulled back slightly and are now trading for $10.01, a gain of 5.13%.
What does this mean for AP Eagers?
The S&P Dow Jones Indices is the largest global resource for index-based data and research. The indices serve as an iconic financial market indicator, prompting the investment of various assets.
The addition of AP Eagers to the ASX 200 can lead to an increased demand in the company's share registry, because many funds have a mandate that requires them to have exposure to companies on a certain index.
How have AP Eagers shares performed in 2019?
AP Eagers is Australia's oldest listed automotive retail group, operating dealerships across the country. The asset-rich company recently acquired market leader Automotive Holdings Group (AHG), providing AP Eagers with a $4.8 million contribution to underlying operating profit before tax. In addition, AP Eagers believes the progressive integration of AHG could result in synergy savings of $30 million and an annualised $13. 5 million in savings by the end of December 2019.
The AP Eagers share price more than doubled in 2019, hitting an all-time high of $14.49. The company's share price came under pressure in early November after AP Eagers released an announcement to the market, warning that external conditions continue to make the automotive retails sector challenging.
The press release explained that the overall market for new vehicle sales has been in decline for 19 consecutive months, representing a decrease of 126,000 units sold over the same period. According to AP Eagers, this has had an impact on the company's profits with national new vehicle sales down 8% on the prior corresponding period. As a result, AP Eagers forecasted a 6% decline in underlying profit before tax for the 10 months ending 31 October 2019.
Despite the sell-off, the company's share price is still up more than 75% for the year.
What is the outlook for AP Eagers?
AP Eagers is a well-managed business and the acquisition of AHG provides the company with exposure to a further 27 car brands and 10 truck/bus brands. However, company operates in an extremely cyclical industry, with global car sales being under pressure for a considerable period.
Many analysts believe that the waning automotive cycle is bottoming and a revival in the sector will see AP Eagers derive significant revenue and cost synergies.
