LatAm Autos Beats Broker Forecast for 1H16

LatAm Autos has recently released its 1H16 Investor Presentation, click here to view it. Canaccord has also reiterated its 12 month price target of A$0.52 in a new report titled “The race to profitability”. To view the complete Canaccord report for LAA click here.

LatAm Autos Limited
Software and Services | Company Update
The race to profitability

LAA-ASX | Price A$0.22 | Market Cap A$65.6M
SPECULATIVE BUY Unchanged
PRICE TARGET A$0.52 Unchanged

Canaccord Genuity (Australia) Limited was a Joint Lead Manager to the two-tranche placement of ~15.38 million shares at $0.31 per share to raise A$18 million in October 2015 and ~6.9 million shares at $0.31 per share to raise A$2.2 million in December 2015 (subject to shareholder approval).

LAA is in the process of building a leading dedicated online auto classifieds and content platform with operations in Mexico, Argentina, Peru, Ecuador, Bolivia and Panama. 

LatAm Autos “LAA” released its 1H16 results that were ahead of CGau expectations at the revenue and EBITDA levels. The result illustrated considerable momentum in the business, not just from an operational standpoint but also from a revenue perspective across its major regions. The result was negatively impacted by a sharp depreciation in the MXN (-15%) and ARS (-35%) during the period; however, on a constant currency basis LAA reported regional revenue growth between +70% (Mexico) and +24% (Peru).

  • 1H16 revenue of A$3.9M was above our estimates (CGAu est. A$3.6M, 1H15 $2.7M) with LAA reporting an effective cash balance of $12.7M. 1H16 EBITDA, excluding discretionary marketing spend, was reportedly just -A$2.3M. Because of the positive commentary coupled with growth initiatives planned for the 2H, we remain comfortable that LAA is on track to meet our FY16 revenue forecasts (A$9.6M). Similar to previous periods, we expect LAA revenue profile to be skewed to the 2H (1H:2H 40%:60%).
  • Online revenues now account for >80% of group revenues, with a big drive into interactive mobile apps (consumers/dealers), a key differentiator versus regional competitors. Notably, lead generation to OEM’s, new car dealers, finance and insurance providers is becoming an incrementally meaningful revenue stream. The launch of its PTX Live is expected to drive increased engagement/usage of its platform/website.
  • LAA materially improved its market positioning in 1H16, with unique monthly views (10M in Jun-16 vs. 7.5M in pcp), listings (186k in Jan-16 vs. 107k in pcp) and dealers using its platform (3.0k in Jun-30 vs. 1.6k in pcp.) all growing strongly. We are attracted to the quantum of car dealers utilising LAA’s platform, enabling further value-added products to be distributed to the dealer network in future periods (valuation, insurance, certification, payments etc.) and increase the net take-rate to LAA.
  • Management highlighted they are positioning “LatAm Autos for continued strong growth in the second half of 2016” with management flagging a number of new revenue streams (7x) to be delivered in 2H16. Management reiterated its guidance to be profitable on a run-rate basis in 2018 (>A$20M revenue), highlighting that the company is expected ~50% revenue CAGR over the coming 2.5yrs.
  • The company is building a defensible market position that is likely to have a strategic benefit to global portal providers in future periods. Our forecasts have been marginally adjusted following revisions to our expense assumptions. Our DCF valuation remains unchanged at A$0.52ps.