Vehicle Supply and Demand Balancing Out for Eagers

We forecast Eagers Automotive to continue to capture share in the highly fragmented auto retailing market. We estimate it now boasts share of about 11%. As the largest dealer in the market, Eagers can centralize back-office operations and fractionalize these fixed costs over a significantly larger volume and revenue base, affording a durable cost advantage over smaller peers. Accordingly, we estimate the company earns gross and net profit margins ahead of smaller competitors. We believe Eagers' extensive size and scale should allow it to deliver midcycle profit before tax margins of about 3%-4%.