This week we look at the automotive market and the current buoyant conditions we are seeing due to a combination of cashed up consumers, increased use of private transport due to Covid and domestic holidaying resulting from border closures. We have also seen national new vehicle sales up 11% in January, sustaining double digit growth since November 2020.
Additionally, the four-wheel-drive segment has been extraordinarily strong, up 23% in sales growth with prices remaining elevated as there is a lack of supply due to shipping delays in international ports. More recently we have seen the car dealers like AP Eagers (APE.ASX) and Autosports Group (ASG.ASX) report very strong results. We at TAMIM are playing this thematic through businesses that are indirectly servicing the sector and we detail three of those below:
Smartgroup (SIQ.ASX) provides salary packaging and novated leasing services to employees of corporates and governments. We have recently spoken to some of their competitors and anecdotal evidence is showing that novated leasing volumes have been strong in the last few months and that there is no abating anytime soon. SIQ guided to CY20 NPATA of $65 million, the consensus CY21 estimate is $70 million and they should also have $30 million in net cash by the end of this year. We believe that analyst forecasts may have to be upgraded through the year if conditions remain buoyant. The company may also recommence acquisitions this year. We think the stock can head back to our valuation of $9.00 through the year.
RPM Group (RPM.ASX) are a mini version of Bapcor (BAP.ASX). The RPM founders have previously built automotive parts businesses and sold them to BAP. RPM sells tyres and motor sports apparel; they also own mechanical repair and service shops. They recently gave guidance of $55 million revenue for this year and are currently trading on 5x EV/EBITDA while peers like ARB Corp (ARB.ASX) and BAP trade on multiples of that valuation. RPM are targeting $100 million of revenue through acquisitions this year. We believe, if they can execute these deals successfully, the stock could potentially be worth $1.00.
National Tyre and Wheel (NTD.ASX) is a business that we wrote about previously. They acquired one of their largest competitors, Tyres4U, last year which brings their combined annualised sales to $450 million. They have already upgraded profit three times in the first half of FY21 and are now on track for $30 million of EBITDA. We see the strong Australian dollar as very positive for the gross margins going forward. In addition, they also have significant cost synergies with the Tyres4U business, achieved by rationalising the number of warehouses around the country. Our internal estimates quantify the savings at $3-4 million p.a., NTD should report 13 cents EPS this financial year and may resume paying dividends at this upcoming February results. We conservatively value the business at $1.50.
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TAMIM Asset Management provides general information to help you understand our investment approach. Any financial information we provide is not advice, has not considered your personal circumstances and may not be suitable for you.
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