Car Group: Revisiting the Company’s Brazil Business Following Seek’s Exit From the Region

We raise our fair value estimate for narrow-moat Car Group by 4% to AUD 27 per share following a review of its Brazil business, Webmotors. Our review was prompted by the recent announcement by narrow-moat Seek to exit Brazil and Mexico, following more than a decade of unsuccessful attempts to enter the market. We had expected Seek to be unsuccessful in the region, while we expected and continue to expect Car Group to be successful there due to differences in network effect dynamics. Following our review, we are upgrading our revenue growth and margin expansion assumptions for Car Group’s Latin American segment. At current prices, Car Group’s shares continue to screen as materially overvalued.