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

353

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, Carsales.com 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 Carsales.com’s chief executive Cameron McIntyre.

Is the stock cheap?

The Carsales.com 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 Carsales.com 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.

Top 3 ASX Blue Chips To Buy For 2019

For many, blue chip stocks mean stability, profitability and regular dividends, often fully franked…

But knowing which blue chips to buy, and when, can be fraught with danger.

The Motley Fool’s in-house analyst team has poured over thousands of hours worth of proprietary research to bring you the names of The Motley Fool’s Top 3 Blue Chip Stocks for 2019.

Each one pays a fully franked dividend. The names of these Top 3 ASX Blue Chips are included in a specially prepared FREE report. But you will have to hurry. Depending on demand – and how quickly the share prices of these companies moves – we may be forced to remove this report.

See the 3 blue chip stocks

 

Here’s how you can strike it rich in the share market…

The best way to strike it rich in the share market is to buy shares that are not only cheap, but growing quickly.

Combining countless hours of research with over 30 years of hands-on stock market investing experience, The Capital Club’s founder Bruce Jackson has just published his definitive list of 3 Cheap and Good ASX Stocks for 2018.

Best of all, the report is absolutely free, exclusively for readers of The Capital Club.

In this comprehensive free report, you’ll find the name of one ASX gold stock that’s not only profitable, but trading at less than 4 times forecast profits.

You’ll also discover the name of a company one fund manager has called the cheapest stock in the ASX 100, and you’ll read about the three catalysts that could push the share price higher in the next six months.

Finally, the report names one of the cheapest retailers trading on the ASX, a company that just picked up the assets of a distressed competitor on the cheap, paying just 2 times earnings. No wonder one top fund manager thinks its share price could at least double.

With the share prices of each of these 3 companies having the potential to double or more, you’ll want to act now. Simply click here or the button below, enter your email address, and this free report will be instantly sent to you.

See the 3 stocks