Stocks In Focus: Eagers Automotive, November 26 2025

0:09G'day and welcome to Motley Fool Stocks in Focus, the podcast and YouTube episode where we go a bit deeper on one of the company's a bit of the company. in that particular company. And yes, I do hold our team's feet to the fire and ask them to at least give me a sense of whether they think it's an outperforming company over the next five years from the current price, which is a good time for me to tell you before I introduce our guest a couple of things. Firstly, this is general, not personal advice. You know that by now, but it's important. We can't tell you what you should do, only what we think about a particular topic issue or in this case, company.

0:52Secondly, we're recording this at the end of November, 2025. The internet is forever in three months, five years, 10 years, 158 years, there'll probably be someone who digs this up and goes, aha, they were right or wrong. Or more importantly, what should I do now? I don't know. What I'm telling you or what we're telling you is what we think right now at the end of November 2025. All right, with that, let me introduce Motley Fool advisor and analyst Chris Copley. Chris, g'day. G'day, Scott. How's it going? Mate, I'm very, very well. By the way, if you're on YouTube, thanks for watching. Go and check the Motley Fool Money podcast feed.

1:22You'll find lots of other good stuff there. And if you're on the podcast feed, thanks for listening. Don't go to YouTube, just youtube.com slash foolau. And wherever you are, please make sure you do subscribe, like, leave a comment, hit the notification bell if you're on YouTube so you get lots more content like this one. Mate, Eagers Automotive, the giveaway is in the second word of the name. But for those who don't know, tell us what Eagers Automotive is and what it does. Yeah, that's exactly right. It is a giveaway. So it's Australia's largest automotive dealership group. So it owns and operates over 300 car dealerships representing more than 50 of the world's favorite car brands.

1:58So whether you're buying a Toyota, a Ford, BMW, even prestige brands like Bentley, Porsche, there's a good chance that Eagers is involved somewhere along the line here in Australia. Eagers sells new and used cars. They also offer maintenance and repairs services as well. and they can also help customers arrange finance and insurance. These bits are typically handled via third-party partners, but Eagers does take a cut as an agent here as well. Interestingly, Eagers doesn't just run its car yards. It also has a growing property portfolio where it owns many of its dealership sites. And this gives it a solid asset base and it's a bit of a buffer on the balance sheet as well if times turn tough.

2:43Its retail businesses are also primarily centered around key high visibility and easily accessible dealerships in prime locations. And its scale and its strategy also allows the business to offer in some cases, many brands in the same location through its auto mall strategy as well. And this strategy is already showing some success, helping to drive cost savings and better meet customer needs too. Traditionally, the business was just Australia and New Zealand, but the business has also started to step offshore. Most recently, by taking a controlling stake in one of Canada's largest dealership groups, Canada One, which is a significant first step in its international expansion strategy and shows it's looking to replicate the success that it's had here in Australia and in new markets as well.

3:33So, yeah, that's EGERS. Nice. Also, a pretty good growth and pretty good representation in electric vehicles as well. Yeah, that's exactly right. They've been very successful in their execution and growth in that side of the market. And, you know, they've got a few major partnership deals with the likes of Mitsubishi and, you know, BYD as well from a few years back. And it's deals like these that have, you know, really been helping the business build its market share across new energy vehicles and, you know, help the business deliver some very impressive results in recent times there as well. Nice, mate.

4:08I've seen plenty of people doing sharks around my way. I'm not sure what other people have seen, but they've seen plenty of them. So the business is doing pretty well on that front. Let's talk about the investment. Let's talk about the business. Now, we say regularly, a great business doesn't always make a great investment. And so you've got to combine the two, right? There is the business itself and there is effectively the price we're paying, the growth potential for that company. And the mix of that makes it either a good or a bad investment. So let's take the business into that investment realm.

4:30Let's do the pros and the cons. We always do the pros first. I'll do the pros first again because that's kind of what we do. By the way, we're not offering here a recommendation at all. This is not going to be a recommendation. I will ask Chris at the end whether he thinks it's likely to beat the market over the next five years, but that is not a formal Motley Fool recommendation. Just kind of keeping that very, very clear for everyone who's watching. And again, we might change our minds tomorrow, next week, next year. Why? Because circumstances change. So we'll keep that in mind. Let's go to those pros, Chris.

4:53Why would our viewers and listeners consider an investment in Eager's Automotive? Well, first, you know, this is a business with size and scale on its side. They're a leader by market share by quite some margin, and this helps translate to stronger bargaining power with car manufacturers and the ability as well to spread costs across a much bigger base. In an industry where brand relationships are critical, Eager's established reputation and track record here mean it is often a go-to partner for many of the major manufacturers. We've already talked a little bit about its growth and focus in the new energy vehicle market as well.

5:30That's something that's absolutely an important part behind an investment thesis in Eager's Automotive. Also, I would say its exposure across used, new vehicles, maintenance and repairs as well helps the company to deliver less cyclical results over time. It's still very much a very cyclical business, but elements of maintenance and repairs, for example, are far less cyclical than new car sales, for example. So earnings from these parts of the business can help to offset other parts through weaker economic conditions as well. Their property portfolio, which we talked about, provides another layer of security, an opportunity for them to get better access to debt on better terms.

6:13And management also believes that over time, margins can continue to improve through more productivity improvements related to its auto mall strategy, which should help reduce its property expenses but also things like improvements in its technology growth in higher margin finance and insurance penetration across its customers as well just to name a few examples of where they think that they can get some margin expansion the management team also has proven themselves as very good operators over a very long period of time so the ceo for example has been you know has nearly 30 years or so of experience in the sector has been with eagers for over two decades, whilst Nick Politis as well, who's a director, has been on the board since 2000, holds a big chunk of shares and is the company's largest shareholder too.

7:02And when it comes to execution, you could clearly see that there's a lot that the business is doing right. Earnings per share has more than doubled over the last decade and the company also pays a very significant percentage of its free cash flow as a dividend as well. So, So a combination of what has been a very strong dividend yield and attractive earnings growth has delivered very, very good results for its investors over a very long period of time. Now, Chris, I know you'd want me to also make the point that Nick Politis is also the chair of the Mighty Sydney Roosters and that's a clear benefit for the company.

7:31If you've got someone so well-connected, so powerful, so successful on the board, that's got to be a good thing, right? No bias there at all, Scott. No bias there at all. A little bit. Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.

7:49let's turn the tables mate let's look at the cons of an investment maybe reasons people shouldn't invest or at least if they're going to things they should know before they do what are some of the downsides the risks the cons of an investment in egos automotive yeah so from from an industry-wide perspective there are risks in i guess evolutions in how cars get sold so historically aussie buyers they head to their local dealership but But car manufacturers, the OEMs, they've increasingly signaled an interest in dealing more directly with customers. So if these manufacturers can ever fully or partially bypass dealerships, there's a direct threat to businesses like Eagers.

8:28So businesses like Tesla, for example, have a direct sales model and some other EV makers like Polestar as well also have a bit of a hybrid type sales strategy. So Tesla also has its own after-sales operations too, where they take care of the service support and things like that as well. A recent shift actually in Eager's relationship with BYD also highlights the risks of changing OEM distribution models as well, where Eager's is no longer the exclusive distributor for BYD in Australia. They still remain a very important partner, and it's very likely that they're going to continue to benefit from BYD's broader market growth, but losing exclusivity could impact future profitability in this area as well.

9:07Another risk is cyclicality. So car sales tend to rise and fall with consumer confidence, with changes in interest rates, with the broader economy. So things like supply disruptions as well. So I think the chip shortage that we had only several years back, this can cause headaches for manufacturers, can impact the supply that we get, particularly here in Australia, where we're so far away from where many of the big manufacturers are. Things like rising interest rates can also make things harder for car buyers. So, you know, earnings can fluctuate quite significantly depending on industry and economic conditions.

9:44Then there's also the usual risks from perhaps regulated views on competition within the industry as well. So, you know, Aegis has a reasonably significant market share somewhere around the mid-teens, I believe. So, So it still probably has a reasonable amount of room to run here before facing this pressure too much, but it's still something to watch out for. And it also may be a reason, by the way, behind its recent acquisition in Canada and the company's expansion plans internationally. On that point, international expansion, it adds opportunities, but it can also add risks around execution, which is worth keeping an eye on as well.

10:19And the final point that I will make is valuation matters. So Eagers is certainly highly priced at the moment, and the business will need to deliver attractive compounding growth rates over a long period of time to justify this price. So that's another risk at this point in time. Yeah, you mentioned the price numbers looking up right now, but over the last, what, five or so years, it's now$30.09 as we record this. Let's keep it live. Early, late 2024, it was$11.37. So this is a business that's almost tripled in price in a year. So it's had a remarkable run, which of course then takes us to the key question, Chris, and the one I'm going to ask you to put your neck out on the line a little bit.

10:55Again, not a formal recommendation, people. Please don't act solely on this one. If it was a formal recommendation, Chris would say it was, but it's not for him. So, mate, what do you reckon? Given the current valuation, given the possibilities, the upsides, given the risks, do you reckon Eagers beats the ASX over the next five years or do you reckon maybe it lags behind? Yeah, I'll start this by saying, you know, I think the business will continue to capture market share over time and I think it will continue to grow at a reasonable rate. But, yeah, over the next five years, is it's got its work cut out for it to beat your market return.

11:23So I'll lean towards no. The main reason is valuation, as we were saying before, nearly 200 % since the last year and a half plus dividends is a great return for a car dealership over a short period of time. So currently, yeah, it trades somewhere in the high 20 times forward earnings and over the last 10 years or so, it's sort of averaged around that 16, 17 times sort of mark. um you know it ultimately still it's it's a great business but it sells cars and it's got a reasonably significant market share it's not a market that will likely grow at a rapid pace so this is quite a significant price to pay um of course management weight may well find ways to expand its margins over time it may be able to continue to capture market share you know find accretive acquisitions like what it's done in canada but but you know this assumption is already priced in to some extent so performance will have to be good to justify it i'll also say you know you can look at peer valuations as well to see how it sits relative to these other businesses.

12:21So in Australia, you've got the likes of Autosports and Peter Warren, who are two other dealership businesses. Both trade somewhere in the mid-teens, which is also relatively high to where they normally sit. Granted, neither have grown quite as efficiently as Eager's Automotive, though Autosports results in particular have also been very good over the years. They focus more on the luxury vehicle market side. You can even look in the US market for similar businesses, so businesses like AutoNation, Sonic Automotive and Penske. These are good businesses which have grown well over time and they trade somewhere around the 10 to 12 times forward earnings.

12:55Now, these businesses have got tariffs adding some uncertainties in US markets. The US market's also a bit more fragmented, a little bit more competitive. Direct consumer models are gaining a bit more traction over there as well. There's also a bit of a difference in the split between maintenance and finance versus new car sales revenues as well. So there's certainly some reasons that you can help justify differences in valuations there, but no doubt 27 or so times Ford earnings is a high price to pay for a car dealership group. I'll also very quickly as well say the business they acquired in Canada, it's one of the leading players in the market.

13:31It's one of the best executors as well by the sound of it. And they paid around seven and a half times profit before tax for this business. And when you buy a controlling stake in quite large businesses, you generally have to pay up for it. It's not a small tuck-in acquisition. This is a leading Canadian dealership group. So I think this also gives a little bit of a sense of value and comparable prices as well. And the fact that at the time of this acquisition, the equity raising that they also did was at a very significant discount to the share price at the time is also not a great sign around value either.

14:03So I think this is a great business. I think it's growing very efficiently, but I think at the current share price, yeah, it's going to have its work cut out for it to deliver market-beating returns over the next five years or so. Very nicely done, Chris. I told you he knows his stuff. Make sure you're following him on all the socials, but also join his services. This is not an ad, but I will say Chris mentioned some of those US companies. He runs our service called Multiple Stars and Stripes. No surprise. Focuses on investments in the US markets, and he does a remarkably good job of that. So, Chris, thank you for sharing your expertise with us.

14:30Thanks for talking to us about Eager's Automotive and the mighty Sydney Roosters. Thanks for watching. Thanks for listening. Do those usual YouTube and podcast things. Like, subscribe, notify, all the good stuff. And until next time, thanks for listening. Thanks for watching. And Fool on.

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