Coronation says WeBuyCars has the potential to capture as much as 40% of the secondhand vehicle market over the long term, putting it in the same league as scaled disruptors such as Discovery Health, Clicks and Capitec.
Ruan Koch, an analyst at Coronation, said WeBuyCars was one of those businesses that improves as it grows.
“We are also impressed by management’s commitment to the long term. It is not preoccupied with short-term results, preferring to invest in the business. Though this might come at the cost of short-term profitability, it will enhance the company’s long-term earnings power and deepen its moat,” Koch said.
“We believe that the market doesn’t fully appreciate the opportunity set that this company enjoys. With superior C2B [customer to business] sourcing, a structurally lower cost model, and data and pricing advantages, we expect eventual market share to exceed management’s targets. If that is the case, the current share price will prove good value.”
WeBuyCars stock took a beating last week after releasing a trading update that disappointed the market despite showing positive momentum.
The group’s market value has shed about R4.2bn over the past two weeks, with market capitalisation falling from R22.5bn in the last week of October to R18.3bn on Friday.
Koch is unfazed about the drop, arguing that the market was still undervaluing the group’s stock.
“As was seen from the very negative market reaction to the recent trading update, high multiples are vulnerable to short-term corrections where earnings delivery is not linear…. We believe the share remains undervalued,” he said.
WeBuyCars, founded by brothers Faan and Dirk van der Walt in 2021, listed on the JSE in April last year with a share price of R18.75.
The company has seen exponential growth over the past three decades, with its website averaging 7-million monthly visits with 2.3-million unique visitors.
The group continues to gain market share, with sales volumes surpassing 16,000 units per month. The group has set a target of buying and selling 23,000 vehicles per month by 2028 — a lofty target that Coronation believes it might well surpass.
WeBuyCars has increased its focus on the accuracy of vehicle evaluations and the company’s ability to build greater trust in its proprietary data, which it believes will serve it well in making smarter, better-informed inventory pricing decisions.
“While we remain confident in WBC’s long-term advantages, we continue to monitor shorter-term factors such as new entrants testing the market and the temporary pressure from cheaper new vehicle imports. We believe WBC’s scale and experience in sourcing and pricing should help it manage these challenges,” Koch said.
“We see scope for a materially higher market share in the decades ahead, potentially as much as 30%-40%. SA precedent supports sustained share gains by scaled disruptors. Case studies include Discovery Health in medical schemes, Clicks and Dis-Chem in pharmacies, and Capitec in banking.”
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