E Inc is still a pass, says Eight Capital

Eight Capital analyst Chrisitan Sgro is still staying on the sidelines on E Inc (E Inc Stock Quote, Charts, News, Analysts, Financials TSX:EINC), saying in a Wednesday update that the automotive auction platform’s 2023 is looking a little murky.

E Inc (formerly E Automotive) has an online wholesale auction marketplace for dealerships to buy and sell vehicles to other dealers, along with software solutions to support dealers’ operations. The company announced its fourth quarter and full 2022 financials on Tuesday, coming in with revenue up 14 per cent year-over-year for the Q4 to $26.3 million and a net loss of $13.9 million. (All figures in US dollars except where noted otherwise.)

Adjusted EBITDA was a loss of $8.3 million compared to a loss of $5.5 million a year earlier. For the year, revenue was up 38 per cent from 2021 and adjusted EBITDA was a loss of $39.5 million compared to a loss of $7.9 million in 2021.

Commenting on the quarter, management said the company endured challenging dynamics while aiming to improve operational expenses.

“Although we expect market headwinds to remain in 2023, we are well positioned to drive significantly more volume through the EBlock platform as supply and demand dynamics normalize,” said Jason McClenahan, President and CEO, in a press release.

Sgro said the Q4 topline of $26.3 million was behind the consensus call at $28.7 million, while adjusted EBITDA at a loss of $8.3 million was a little better than the Street’s estimate at negative $9.3 million. The analyst noted E Inc’s transacted volumes at 43.5K compared to 48.9K for the previous quarter, while average price per vehicle dropped from $14.2K in the third quarter 2022 to $13.3K.

Looking ahead, Sgro said volumes are likely to remain constrained over the first half of 2023 and could be only modestly up from the fourth quarter, although gross margin and profitability could be positively impacted by rising car prices and improved conversion rates.

“EINC’s year-end results saw the impact of constricted volumes and pricing pressures, consistent with reports from market sources and automotive peers. With better-than-expected adj. EBITDA, we are already seeing the benefit of cost containment measures as the company actively works toward cash flow breakeven,” Sgro wrote.

“While Q1/23 is expected see some macro relief, we remain cautious on an uncertain outlook for the full year as EINC works to take share as conditions improve,” he said.

With the update, Sgro maintained a “Neutral” rating on E Inc while lowering his target price from C$8.00 to C$5.75 per share, implying a 12-month return of 67 per cent.