On Thursday, Citi maintained a Buy rating on AUTO1 Group SE (AG1:GR) (OTC: ATOGF) stock, while increasing the price target from EUR12.00 to EUR12.30. The adjustment follows AUTO1 Group's third-quarter results, which prompted the firm to update its financial model for the company.
The analyst from Citi cited several reasons for the optimistic outlook, including AUTO1's upgraded unit guidance for 2024. The forecast for the number of units sold by both Merchant and Autohero has been raised to 602,000 and 72,000 respectively, up from previous estimates of 583,000 and 71,000.
This revision is based on the strong third-quarter gross profit per unit (GPU) performance and the company's improved guidance for gross profit and adjusted EBITDA for 2024.
AUTO1 Group's long-term Merchant GPU corridor has also been increased to EUR 825-935, from the previous EUR 800-900 range. Additionally, Autohero, the company's retail arm, reported a GPU that exceeded expectations. As a result, Citi has increased its forecast for AUTO1's FY24 adjusted EBITDA to EUR +82 million, up from the previous estimate of EUR +64 million.
Looking further ahead, Citi anticipates a year-over-year growth of 18% in Autohero units for FY25. The firm believes that AUTO1 Group's continued efforts to optimize pricing and inventory will lead to further profitability improvements. Potential levers for enhancing profitability include merchant financing and the offering of additional services.
The analyst also noted an adjustment to the weighted average cost of capital (WACC) for AUTO1 Group, taking into account recent risk-free rate data. This WACC adjustment reflects changes in the broader economic environment that could impact the company's cost of financing and required return on investment.
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