The Carsales.Com share price crashes into a $48 million impairment charge


The Carsales.Com Ltd (ASX: CAR) share price skidded lower today as the ASX lost ground after management announced a $48 million hit to its bottom line.

The Caresales share price dropped 0.9% to $11.64 during lunch although it recovered from a steeper 1.2% loss in morning trade.

In contrast, its peers have also lost ground. The REA Group Limited (ASX: REA) share price slumped 2.1% to $72.53 while the SEEK Limited (ASX: SEK) share price lost 0.5% to $17.50 and the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index shed 0.7% of its value at the time of writing.

Stalled on Stratton

The online auto classifieds business said that its first half profit would be take a circa $48 million haircut as it writes down the value of its investment in the underperforming Stratton Finance business.

It’s not a big surprise as issues with the business is well known. The regulatory changes on car financing and tight credit market conditions that’s also hurting the banking sector have contributed to the write-down in the value of the business.

The benefits from streamlining Stratton have also taken longer to materialise although it isn’t all bad news.

Silver lining

Management said that Stratton’s total contract volume have been higher for the five months to November in spite of the challenges when compared to the same time last year (although it didn’t say anything about the total value of the contracts).

The impairment is non-cash and won’t impact on the group’s debt convenient or its ability to pay dividends although it warned that its share of profits from Stratton will halve in FY19 to $1 million when compared to the previous financial year.

Further, is also sticking to its guidance given at its annual general meeting and management is talking up the longer-term outlook for the Stratton business.

“The company still believes the finance market remains attractive in supporting its core business over the longer term and will continue to evolve both product and operating models to leverage these finance market opportunities,” said’s chief executive Cameron McIntyre.

Is the stock cheap?

The share price has underperformed its peers as consumers have cut back on buying vehicles as falling property prices have prompted many to cut back on large discretionary items.

But the stock is starting to look interesting as is trading on a consensus FY19 price-earnings (P/E) of around 19 times – its lowest in at least five years.

It’s also good to see that its chairman Patrick O’Sullivan buy close to $100,000 worth of shares last month.

There’s no rush to buy the stock though. I would prefer to see its interim results in February next year before deciding whether the stock is cheap.

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