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EAGERS Automotive Ltd expects its first-half net profit before tax to hit $246 million, well above the profit guidance given on May 18 this year of between $225 million and $240 million.

This compares with the previous corresponding period of 2021 when Eagers reported a first half profit of $202.3 million.

The company’s CEO, Keith Thornton, said that despite ongoing new-car supply problems, the improved outlook – to be released on August 25 after an external audit review – was attributed to a continued growth of the record new-car order book, and ongoing productivity and cost-cut measures.

During the calendar half year, Eagers had completed the sale of the Bill Buckle Auto Group and properties, to the Australian Motor Group.

Mr Thornton said at the time of the announcement of the sale of Bill Buckle that Eagers’ geographic footprint in NSW “has changed considerably since our acquisition of Automotive Holdings Group (AHG) in 2019”.

Keith Thornton

“It makes strategic sense for us to divest the business now as we continue to execute our Next100 Strategy.”

He said that the sale proceeds “will provide Eagers with additional capacity to invest in organic growth and pursue identified strategic acquisition opportunities consistent with the strategy.”

Bill Buckle Autos was bought by AP Eagers in March 2008 for $36 million, including $22 million for the land and buildings.

This week, Eagers said that: “This sale delivered cash proceeds of approximately $88 million and an estimated profit before tax of $48 million, subject to final adjustments and external audit,” Eagers reported to the Australian Securities Exchange (ASX) this week.

“The company has maintained a very strong financial position with available liquidity of $843 million (including record available cash of $326 million) and net corporate debt of $13 million as at June 30, 2022, compared with $128 million as at December 31, 2021.

“The strength of the company’s balance sheet supports its intention to carry out an on-market share buy-back of up to 10 per cent of its issued capital, subject to market conditions and the company’s securities trading policy as announced on Jun 16, 2022.”

GoAutoNews Premium reported in June that Mr Thornton said “the buy-back reflects the board’s prudent focus on active capital management and is testament to the company’s strong balance sheet.”

Carzoos

The news was regarded as a “smart move” by Motor Industry Services lead for Pitcher Partners Sydney, Steve Bragg, given Eagers’ current strong trading and the current unrelated market sentiment driving down their share price.

Mr Bragg said the reasons for Eagers buying back its shares included ownership consolidation, perceived share price undervaluation, and to boost its key financial ratios.

“Share buybacks preserve the stock price,” he said in June.

“Shareholders usually want a stream of increasing dividends from the company they invested in and one of the goals of company executives is to maximise shareholder wealth.

“However, company executives must balance appeasing shareholders with staying nimble if the economy dips into a recession.”

In 2021, the full year profit before tax for Eagers was $456.8 million, a substantial rise on the $280.1 million recorded for the previous full year in 2020.

In the same period, the profit after tax was $330.7 million, up from 2020’s $156.2 million.

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By Neil Dowling

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