E Automotive still has a huge upside, ATB says

ATB Capital Markets analyst Martin Toner is staying bullish on used car auction tech company E Automotive (E Automotive Stock Quote, Charts, News, Analysts, Financials TSX:EINC). After reviewing the company’s latest quarterly numbers, Toner reiterated an “Outperform” rating on the stock in a Tuesday report and a C$12.50 target price, representing at press time a projected one-year return of 273.1 per cent.

E Automotive released its Q1 numbers on Tuesday, coming in with revenue up 24 per cent year-over-year to $30.8 million and an adjusted EBITDA loss of $4.9 million compared to a loss of $8.9 million a year earlier. The company said the topline boost came from increased auction fee and ancillary revenue from pricing actions, increased adoption of ancillary services and an increase in vehicle sales. (All figures in US dollars except where noted otherwise.)

“We believe we can continue to grow the top line and deliver profitability on a run rate basis within the near term,” said Jason McClenahan, President and CEO, in a press release. “While used vehicle pricing remains high, we continue to see strong demand in our digital platform and physical auctions and have the ability to scale as the market normalizes driving more transactions, adding more participants, and thereby creating operating leverage for our business.”

The big news on EINC came last month when the company announced plans to voluntarily delist from the TSX and repurchase for cancellation up to C$7.5 million in shares. EINC said the listing currently doesn’t serve to benefit the company, citing costs associated with listing, limited trading volumes for its shares and a loss of institutional investors as the majority shareholders. With the Q1 press release, management reiterated its expectation to delist on or about May 24, 2023.

Looking at the quarterly results, Toner said the $30.8 million topline was inline with his estimate also at $30.8 million but above the consensus forecast at $29.1 million. The adjusted EBITDA loss of $4.9 million was also equal to Toner’s call at negative $4.9 million and under the Street at negative $6.5 million.

Up ahead, Toner is calling for EINC to deliver full 2023 revenue and EBITDA of $126.9 million and negative $18.9 million, respectively, and moving to 2024 revenue and EBITDA of $175.7 million and positive $2.5 million, respectively.

“We believe E Inc has a unique opportunity to be an enabler of technological change, deliver significant value to dealers, and be rewarded with share in two attractive businesses,” Toner wrote.

“The subscription business features recurring revenue, high gross margins, and low churn. Investors have typically been willing to pay high multiples of revenue for growing businesses with these characteristics. The auction business is transactional and is subject to fluctuations in the price of the underlying assets. Automobiles are highly economically sensitive; however, in normal economic conditions, the demand is predictable and stable. The wholesale vehicle auction market is relatively recession resilient,” he said.