2 Cheap Cars Group Limited Analysis

Overview

2 Cheap Cars Group* is an integrated used automotive group operating throughout New Zealand. We are vertically integrated from procurement in Japan through to our retail branches nationwide. Operating under the “2 Cheap Cars” brand, our Automotive Retail company is one of the largest used vehicle sellers in New Zealand with 12 dealerships across the country.

Our mission is to deliver on our promise… 2 Cheap Cars, driving better deals, every day.

*2 Cheap Cars Group was previously known as NZ Automotive Investments (NZAI).

Performance

The following information was extracted from 2 Cheap Cars Group Limited full year results, released 24 May 2024:

2 Cheap Cars Group Limited (NZX:2CC) has today reported a record $6.2m net profit after tax (NPAT) for the full year to 31 March 2024 (FY24), an increase of $4.9m over FY23.

Summary of key results

(Figures quoted are in NZ dollars. Comparisons are made against FY23.)

• Revenue and income: $86.8m, increased 5% .
• Gross margin: $20.3m up 39%.
• Vehicle sales: Down 2% to 8,169.
• Underlying EBITDA including finance income: $11.4m, up 105%.
• Net profit after tax (NPAT): $6.2m, up $4.9m.
• Underlying NPAT2: $6.2m, up 213%.
• Underlying earnings per share (EPS): 14 cents per share (cps) vs 4.4 cps.
• Final gross dividend: 5.78 cps.
• Total FY24 gross dividend: 11.56 cps vs 0 cps.

The Company achieved full year revenue and income of $86.8m, an increase of 5%, driven by higher prices and improved finance and insurance (F&I) penetration rates which have offset slightly lower volumes for the full year.

2CC’s gross margin expansion strategy has been extremely effective, strengthening 6% to 23% for the full year. This has been achieved through optimised pricing, effective promotional activity, improved finance and insurance penetration and the continued insourcing of compliance activities. The full year gross margin is up 39% to $20.3m.

Operating costs have risen marginally by 1% to $8.9m, significantly below the rate of inflation. Management continues to be strongly focused on both minimising cost increases and reducing reliance on third parties throughout the value chain.

The Company’s focus on gross margin and tight control of operating costs has seen underlying EBITDA including finance income increase 105% to $11.4m in FY24.

Underlying NPAT, excluding last year’s non-recurring costs, increased by 213% to a record $6.2m in FY24.

Interest costs, excluding those associated with leases, were down 52% on FY23, reflecting changes in finance facilities and prudent capital management.

Net operating cash inflow was $6.9, down $6.3m year on year, largely due to the strategic decision to maintain stronger inventory levels. The Company is well positioned with inventory valued at a healthy $13.9m, (up $5.5m over FY23 which was impacted by shipping constraints).

As at 31 March 2024, the Company is in compliance with all banking covenants and has cash of $4.7m, no net debt and total equity of $20.4m.