APE/AP Eagers

APE, the large car dealership, out with an AGM + trading update.

The trading update has an awful lot of throat-clearing before they get to the key bit. The more they talk up the recentish past year accomplishments the more you know the “however” is coming.

The key bit:

If it’s 85% of 1H23 NPAT, that’s $120 odd, vs $154m consensus for 1H24, which normally means a large negative market reaction, one would assume.

We’ve been saying for a long time that the consumer discretionary names would come under pressure, and it looks like that is finally occurring. We are some 700bps underweight the discretionary names in our direct equity sleeve.

That said they really have done a good job. The cycle is what the cycle is, and cars are up there with steel and building products in terms of cyclicality.

Also worth noting, the downgrades are certainly picking up in tempo over May.

We started with relatively few downgrades at the Macquarie conference (normally there’s more), but the remainder of the month has seen plenty come through, and it has been quite widespread (thinking of SPK and TLS, within telecos, who have tickled down guided numbers, and they are normally resilient sectors) but also within healthcare (Sonic) as well as the consumer stocks (Michael Hill Jewellers we wrote about on Monday).

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