Company’s sale prices jump
2 Cheap Cars’ average sale price of a vehicle including on-road costs so far in 2023/24 is $11,617 – up from $9,563 when compared with the same time in the previous financial year.
Angus Guerin, chief financial officer, told shareholders at the company’s annual meeting that for the five months to the end of August, that it delivered net profit after tax (NPAT) of $2.4 million compared to $0.7m in last year’s equivalent period.
“There are several drivers behind these amazing results,” he said. “But at the heart has been a sharp focus on gross margin even at the expense of some volume.”
2 Cheap Cars’ year-to-date gross margin has come in at 24 per cent for a six percentage-point increase on the same period in 2022/23.
“We’ve achieved this by buying better, [which has been] helped by a favourable exchange rate, improving reconditioning efficiencies and carefully managing pricing to ensure we remain competitive while not leaving money on the table,”
Guerin, pictured, said at the annual shareholders’ meeting in Auckland on September 28.
“While our average year-to-date volume is below the prior year by 17 per cent, we have consistently exceeded prior-year gross margin in percentage and absolute terms. We’ve seen this flow directly to the bottom line.
“Our revenue is slightly ahead of the same period prior year, which reflects higher prices and stronger F&I penetration offset by the 17 per cent lower volumes and the impact of lower revenue from our loan book, which continues to wind down.
“Our year-to-date operating cashflow was $4m despite having built inventory to a more stable level following the shipping constraints noted at the previous year end. This compared to $3.7m at the same period prior year.”
Moving forward
In July, the company released an earnings upgrade taking its full-year guidance to NPAT of between $3.8 million and $4.2m. Following strong results in July and August, it recently upgraded that to $5.2m-$5.7m.
Guerin said: “Should the board declare dividend payments, based on a midpoint of $5.45m, this would result in a gross interim dividend of five cents per share payable in December and a final dividend at a similar level in June 2024, dependent on final full-year NPAT.”
A 10-cent full-year dividend would translate to a gross yield of 16 per cent. He added the company was confident in achieving this result for a number of reasons:
• It has a much more stable supply chain with several freight-forwarding options.
• The company’s in-house compliance activities, which were launched in July, have delivered significant monthly cost savings and have “further untapped potential”.
• The yard in Christchurch is due to double in size from mid-October with significant additional monthly volume anticipated.
• The on-yard percentage of capacity continues to improve, driven by operational efficiencies at the company’s processing hub in Onehunga, south Auckland.
Guerin added: “Having said that, we have taken a conservative approach to the rest-of-year forecast regarding vehicle margins and F&I penetration, factoring in the financial pressure on Kiwis heading into Christmas.”
