Trading updates and results are always fun. The headline numbers tell us how revenue, profits and, hopefully, dividends are doing. Everything’s always nicely presented, though sometimes we get management-tweaked numbers. But that’s for another column.
This week I want to point out the obvious: we need to dig into the numbers. Two recent examples show exactly why.
The WeBuyCars trading update looked a little light on the surface. Headline earnings of between 222.3c and 226.9c a share were down on the expected consensus of about 246c. Definitely not good. But this was potentially distorted by the issue of shares on the listing. So a better metric is just raw headline earnings, expected to come in at R917.2m-R958m. At the midyear stage that figure was R508.2m — so the second half will contribute only about R430m. Ouch.
WeBuyCars did not disclose how many vehicles were sold in the second half, but we can assume the number is lower; certainly revenue growth went backwards. This spooked the market for a stock that had been trading on an earnings multiple of more than 25 before the trading update.
The other update was the Pick n Pay results. They showed a headline loss for the 26 weeks of R439m compared with R803m in the previous period. On the surface it seems like a huge improvement, but Pick n Pay stores actually reported a R621m loss. The difference is the proceeds of the rights issue that paid down a lot of debt and so reduced the interest bill.
Pick n Pay’s turnaround was always going to be long and difficult, and returning CEO Sean Summers has made no secret of this. You are still, however, essentially buying Pick n Pay for free when you take into account its stake in Boxer and net cash of almost R4bn. The risk is that not only does the business need to be turned around, it then has to take on the other food retailers and try to get market share back. That’s going to be tough.
WeBuyCars is a different story. This is not a turnaround; this is a profitable business whose profits slipped. The worry is why.
The half-year results to end-March showed that 92,339 vehicles were sold for revenue of a little over R13bn. That means the average vehicle sale price is just more than R140,000 — decidedly cheap.
However, that’s the average, and a quick check of its website shows 9,087 vehicles (excluding trailers, caravans and so on) for sale, with 5,806 priced over R150,000. So turnover in lower-priced vehicles would seem to be a lot faster than in more expensive ones. This makes sense; cheaper sells quicker.
But maybe the problem, as Chantal Marx of FNB Wealth & Investments suggested to me, is Chinese vehicles. The Omoda C5 starts at R329,900. In other words, maybe higher-end second-hand cars are now competing against new, highly specced, cheaper Chinese cars?
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