The ASX tech share CAR Group Ltd (ASX: CAR) has enormous potential, based on what UBS thinks could happen with the vehicle marketplace business. There is exciting potential for the CAR Group share price.
While best known for the Australian business Carsales, it also has exposure to other markets, including South Korea (through Encar), Brazil (with Webmotors), and the USA (with Trader Interactive).
After seeing the result, UBS said that it was a "solid result", which points to continuing execution in all regions.
UBS view on the result
The broker pointed out that CAR Group's results showed consistent execution and growth across all regions.
CAR Group reported that revenue rose 8% to $626 million, operating profit (EBITDA) went up 11% to $324 million, and reported net profit climbed 16% to $143 million. The board of directors decided to increase the interim dividend per share by 10% to 42.5 cents.
Australian revenue rose 8%, with adjusted EBITDA growth of 8%. North America revenue grew 13%, while adjusted EBITDA climbed 11%. In Latin America, revenue grew 23% and adjusted EBITDA climbed 29%. Asian revenue increased 17% and adjusted EBITDA went up 13%.
UBS liked CAR Group's reassurance on AI because of market concerns. AI investment by the business will fall within the "existing spend envelope" over the medium term, at around 10% of capital expenditure. It's also starting to see signs of incremental revenue from AI-supported products such as "lead nurturing, sourcing products in Australia and the US, and guarantee inspection in South Korea."
The broker believes the investment in AI will continue to support yield and depth growth across all regions. For example, a fully AI-driven search experience has led to two times the leads in Brazil.
UBS also noted that there is "longer term margin upside potential" from AI, with the company suggesting near-term reinvestment of AI productivity savings back into AI developments, but with potential for margin expansion in the medium-to-longer term.
The broker forecasts that CAR Group's margins can continue expanding in FY27 onwards by an average of 80 basis points (0.80%) per year over the next three years.
UBS also believes that growth in the US (with Trader Interactive) is poised to return to double digits, driven by dealer additions, a 6% price rise in January, and growth in leads in private, media, and marine.
How much could the CAR Group share price rise?
The broker suggested that the business is trading at a relatively low price compared to its typical historical earnings multiple, while still delivering double-digit earnings growth. It's valued at 25x FY26's estimated earnings, according to UBS' projections.
UBS has a buy rating on the business with a price target of $39.60. That implies a possible rise of more than 50% at the time of writing.
The post The CAR Group share price is a strong buy – UBS appeared first on The Motley Fool Australia.
Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended CAR Group Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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