When the COVID-19 pandemic first hit a couple of years ago, public transport instantly fell out of favour.
Private transport — like cars, motorbikes and scooters — saw sales surge as people around the world sought to get around without close contact with other commuters.
Businesses that supplied, manufactured and sold such vehicles did pretty well and enjoyed a tidy rise in their valuations.
But now that much of the developed world is moving into the post-pandemic era, how will they fare?
The analysts at Auscap Asset Management think that at least two automotive ASX shares have strong futures ahead of them:
'Considerable earnings tailwind'
Eagers Automotive Ltd (ASX: APE) owns and operates a network of car dealerships in Australia and New Zealand.
The share price enjoyed a spectacular 466% rise from March 2020 to April 2021 on the back of incredible demand for private transport.
Since then the stock has cooled off, with AP Eagers shares now going for about 20% less than at the start of this year.
For the Auscap team, the market is too focused on external drivers rather than the actual business performance.
"Eagers delivered another strong half-year result in August 2022," its memo to clients read.
"The market continues to focus on the potential for a slowdown in new vehicle orders, given the widespread expectation of a softening consumer environment, although Eagers said they had yet to see a slowdown in demand as of August."
Pandemic-induced supply constraints have meant Eagers now has a huge backorder of vehicles yet to be delivered. And revenue is not counted until the customer is behind the wheel of their new car.
"Eagers has delivered fewer cars than it has sold in every single month since the onset of the COVID-19 pandemic," read the memo.
"This record order bank provides Eagers with a considerable earnings tailwind for the rest of this calendar year and into 2023."
In addition, the company has improved its business throughout the pandemic.
"Eagers has taken advantage of COVID-19 uncertainty and current earnings visibility to improve its dealership footprint with a number of acquisitions and divestments, invest in future growth initiatives such as the AutoMall concept and omni-channel used car offering known as EasyAuto123, and aggressively right-size its cost base."
Eagers shares currently pay out a dividend yield of 5.8%.
Auscap already holds Eagers shares and has watched in glee as insiders bought up the stock in recent weeks.
"Nick Politis, the company's 28% shareholder and a major automotive player in his own right, has purchased over $4 million worth of shares on-market since July. Chairman Timothy Crommelin and board member David Blackhall have also bought shares in recent months."
'Consistently grown' market share
The Auscap team also loves the fund's holding in MotorCycle Holdings Ltd (ASX: MTO), which operates Australia's largest motorcycle dealership network.
The company is responsible for 12% of all new motorbike sales in the country and sells all 10 of the top-selling brands.
"While the motorcycle industry does experience cyclical swings, Motorcycle Holdings has consistently grown share through both organic and inorganic means since listing in 2016," read the Auscap memo.
"In addition to growth, MotorCycle Holdings has been focused on diversification, which we think is underappreciated."
This refers to the recent acquisition of "large" parts and accessories business MOJO, a "consistently profitable" finance joint venture and geographic expansion.
"MOJO is a specialist in scooters, all-terrain vehicles (ATVs) and electric motorcycles. These are categories experiencing structural market share growth where MTO has been underweight," read the memo.
"While businesses focused purely on distribution can tend to have key supplier risk, we think MOJO has the potential to fit in well and grow strongly within a diversified MotorCycle Holdings."
The MotorCycle Holdings share price has dipped 19.7% year to date, and currently pays a 8% dividend yield.
The $153 million company, Auscap analysts believe, is flying "under the radar".
"[The stock] is currently trading on just 5.6x pro-forma FY22 net profit after tax pre-synergies.
"It has net Debt/EBITDA of just 0.6x and management expects MOJO to experience strong earnings growth in FY2023."
There is also a connection to the other auto stock, with former Eagers chief Martin Ward set to join the MotorCycle Holdings board.
Ward was at the helm of Eagers over a 15-year period when its profit before tax multiplied more than eight times.
"It is not surprising to us that the MOJO vendors took as much of their acquisition consideration as possible — 50% — in MTO stock."
