Asset manager Coronation backs WeBuyCars (WBC), recently unbundled from Transaction, to deliver better returns than what the market has now priced in.
WBC made a sparkling debut on the JSE in April, reflecting the company’s growth trajectory from a local start-up to a major player in the used car market. The second-hand car vehicle trader was valued at R8.3bn on Tuesday, up 2.55% on the day.
Ruan Koch, an analyst at Coronation, said there were no signs to indicate WBC’s market share growth was stalling.
“We think that the competitive advantage period for WBC will be significantly longer than what is currently being priced in. It is the leader in its industry with no sizeable peers. WBC shows promise of attractive organic growth, both by growing its market share and potentially expanding its overall market,” Koch said.
“As the scale of WBC’s operations increases, its moat grows and its low-cost advantage improves. We forecast that unit economics and overall margins will further improve as a result. Its unique positioning will continue to deliver robust growth in free cash flow per share for years to come and, at only an 11 times price-to-earnings multiple, investors don’t have to pay much for this potential.”
Coronation played a part in the unbundling, subscribing for shares in WBC while it was still unlisted and participating in the pre-IPO book build, to help facilitate the overall transaction.
For Transactional Capital shareholders, the listing separates a fast-growing division from the parent company, which has its hands full with SA Taxi, the struggling financier of hundreds of thousands of taxis. Taxi owners are struggling to keep up with repayments amid the cost-of-living crisis and job cuts.
WBC went from selling fewer than 1,400 vehicles a month in 2017 to more than 13,000 a month.
Koch said new vehicle sales had been under pressure, with higher interest rates and depressed consumer affordability being two key drivers, and that this had led to an increased appetite for well-priced used vehicles.
‘Affordable vehicles
“WBC does not focus on the premium end of the market, but on these older and more affordable vehicles. The average selling price and age for a vehicle traded by WBC were R141,000 and nine years, respectively,” Koch said.
“This segment of the market is the least competitive and heavily fragmented, with most of the larger dealership groups focused on used vehicles between one and five years old. In time, we see WBC also gaining market share in these newer used vehicles as its national scale and sourcing efficiencies lead to a continuously improving proposition for consumers.”
WBC in 2021 bought the Ticketpro Dome in Northgate, Johannesburg, and converted it into the biggest vehicle showroom in Africa, housing 1,500 bays. The company has outlined plans to add 2,000 more bays in 2025-26 and expand into new regions.
Koch said by using large warehouses closer to industrial areas, it provided its supermarkets with the capacity to display between 500 and 1,500 vehicles on average, while operating with a substantial cost advantage to traditional dealerships.
“Sharing the benefits of its economies of scale with consumers should ensure better pricing for both sellers and buyers through reducing the bid/ask spread for used vehicles, and encouraging higher sales velocity,” he said.
“Their data analytics also help them to dynamically shift their customer mix between private individuals and vehicle dealers. While sales to dealers don’t have any additional margin from financing or insurance products, the benefit is a very quick stock turn.”
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