@Raseekingalpha I don't really know much about $APE. While its Debt to EBITDA at EOFY25 was 3.3, which is superficially high, most of this is funding vehicle inventory, so essentially working capital. It's net debt to EBITDA was more like 0.2x by my numbers, so pretty light.

So, clearly it has debt capacity, and so it comes down to how management and the board are more generally considering their capital structure, alignment with partners in the new Canadian venture etc, and the risk and reward around this, plus other plans that they want to retain capacity for (e.g. future growth).

Superficially, it appears to me they could have done this with debt, which would have taken Net Debt to EBITDA to around 1.0, which is still reasonably conservative in its sector.

Sorry, I don't have anything meaningful to say on this one. Giving an intelligent response would require me to get into this one more deeply, and that is not on my work list.

You'll probably get a better answer from StrawPeople who follow this company closely.

I'm not familiar with the specifics of this company @Raseekingalpha but as a general rule I think a company should choose the lowest cost of capital option.

And that depends a lot on the share price and company valuation, and the interest rates and terms available from lenders.

Id a company is going to go with equity, it's almost always better whenever the share price is a good amount above a sensible appraisal of fair value.

Another thing to consider is that debt is temporary, but equity is forever. Usually, anyway. Yeah, debt can be rolled, and shares bought back, but if a company is doing well that buy back is probably going to be at a higher price than what you sold them for, so unless you get a chance to buy well below fair value it's not a great option for short to medium term funding.

Aside from all that, it depends on what the capital is needed for. Some extra funds for working capital is very different to money needed for a big acquisition.

Sorry for the vague "it depends" answer, but like most things there's a good bit of subtlety here.

@Strawman this is the answer i got from gemini

• Avoiding Over-Leverage: Funding the massive international expansion into North America via equity allowed the company to grow without over-leveraging its balance sheet.
• Eliminating Debt During a Rising Rate Cycle: Instead of taking on new debt, the equity raise allowed Eagers to aggressively pay down its existing borrowings while interest rates were rising. Consequently, Eagers "crushed" its corporate net debt from $813.1 million in FY 2024 to just $100.0 million in FY 2025, resulting in a historically low gearing ratio of 0.18x and making the corporate entity virtually debt-free.
• Capitalizing on a High Share Price: Management took advantage of a strong share price to raise equity at $21.00 per share. Analysts noted that raising equity at this price—which was above the stock's estimated fair value—was a highly accretive move for the company.
• Protecting the Dividend: Keeping debt low through the equity raise helped Eagers protect its dividend payouts during a period of industry-wide margin normalization.

Ultimately, the roughly AUD 1 billion acquisition was funded through a mix of AUD 386 million in scrip (shares) and AUD 658 million in cash, which was supported by a retail entitlement offer and a strategic equity placement to Mitsubishi Corporation.

@Strawman Is this a stock that we should evaluate as a community, it seems to becoming a monopoly in Australia

@Raseekingalpha i haven’t looked at Eagers before. It looks Ike a quality business, although ROE has been falling and earnings per share have been flat for several years. The net debt on equity is high also at 88%.

According to analyst consensus EPS and ROE could be about to improve. FY26 (Dec 2026) earnings are forecast to be $1.26 per share, and ROE 18%.

I think Eagers would be reasonable buying at your valuation of $17. That would put it on a forward PE of 14 which is at the lower end of the PE range over the last 5 years.

At the current share price of $21.11 Eagers is trading on 16.7 times FY26 earnings, which looks fair.

Using McNiven’s Valuation formula assuming current equity of $7.02 per share, forward ROE of 18% (based on FY26 earnings at $1.26 per share), 15% of earnings reinvested, fully franked dividends, and a required ROI of 11%, I get a valuation of $16.70.

So without a doing a deep dive into the business and purely working on analyst consensus for the valuation, I would say raising equity at $21 per share looks OK. I don’t think it undervalues the business, but some brokers might think so. The consensus price target is $28 (15 analysts).

On the 26th February the Chairman, Timothy Boyd Crommelin, bought 5000 shares at $24.04 (total $120,182).

Not held

I'm tempted by Eagers at this price, has always looked a bit too expensive to me until now. The team at intelligent investor rave about it, having done a site visit a few years ago they believe the company culture and facilities are top notch, some of those intangibles you can't see in just the numbers (although you hope to in the long term of course!). Also, the current oil price spike and panic over fuel prices is delivering a compelling leading indicator for Australia's retailer of BYD! See trends below.

I think with oil prices going up interest for electric car will go up especially baby boomer & millienials who can withthand the inflation.

I’ve been working through the APE numbers and I think the real question isn’t whether it’s a good business — it clearly is — but whether the forecast curve everyone is leaning on is actually realistic.

If you zoom out, the long‑term fundamentals tell a different story to the analyst table:

• Revenue has grown strongly, but
• EBITDA has been flat for four years, and
• EPS has been essentially sideways, even before the equity raise.

That’s the signature of a cyclical roll‑up, not a structural compounder.

The 2026–27 forecasts assume a lot of things go right at once:

• margin expansion
• smooth CanadaOne integration
• no agency‑model pressure
• no EV servicing erosion
• no macro slowdown
• and no multiple compression

It’s an optimistic stack.

If you run a base case using APE’s historical margin profile (4% EBIT, 12–14× P/E), you get something closer to:

• EPS: 0.90–1.05
• Fair value: $13–$17

At $20–21, the market is already pricing in the bull case.

Not saying it can’t get there — just that the current price assumes a level of perfection that probably deserves to be acknowledged in the discussion.

"I really appreciate the caution here. You're 100% right that a 25x multiple on a cyclical requires a healthy dose of skepticism. However, I’ve been digging into the FY25 Investor Slide, and I think there's a structural efficiency story here that the historical 'sideways' EPS doesn't quite capture yet.

1. The 'Debt Miracle' & Capital Allocation The biggest discrepancy in the current valuation is the debt. While many models are still plugging in $1.7B+, the audited reality is that Corporate Net Debt was crushed by 87% to just $100.0M (Gearing 0.18x). Management essentially used a period of high share prices to clean the slate—that’s a high-quality capital allocation move that de-risks the business significantly compared to its 10-year history.

2. Efficiency as a Weapon (The 'Volume' Game) I'd argue the 'flat' EBITDA isn't a sign of a stalled roll-up, but rather a sign of operational absorption. APE has driven its cost base down to a historic low of 12.1%.

They are using that efficiency to maintain a 4.0% core margin while the rest of the industry is struggling. By keeping margins steady while others are forced to cut, APE is effectively winning the volume game and stealing market share. It’s a 'structural predator' move: use scale to stay profitable at price points where smaller dealers bleed.

3. The NEV/EV Pivot The pivot to New Energy Vehicles (NEVs) is the real 'alpha' here. APE now owns 34% of the Australian NEV market.

• BYD growth: +156% YoY.
• Ecosystem: This feeds their high-margin easyauto123 and financing arms (which saw a 58% profit jump).

The Bottom Line: You’re right that $21.00 prices in a lot of success. But at 100.7 cps Underlying EPS, we’re looking at a forward P/E of roughly 20x for a debt-free market leader with a monopoly on the fastest-growing segment of the industry (EVs).

If the efficiencies you're looking for 'kick in' alongside the CanadaOne integration (already 32% above target), that 'optimistic' curve might actually be the base case. Happy to be proven wrong.

CompanyRevenue per Employee

Eagers Automotive (APE)~$1.48 Million

Autosports Group (ASG)~$1.34 Million

Am i missing anything else@Foxlowe

@Raseekingalpha you make some really great points — management has executed well — I believe there is still a mechanical gap in the thesis. The recent gains look structural on the surface, and I still believe the underlying drivers remain overwhelmingly cyclical.

How the debt was raised matters.

Net debt is down ~87%, driven by equity raised at peak multiples, assets sold into a hot market, and a once‑in‑a‑cycle margin environment used to clean the balance sheet. Good capital allocation, and not something that repeats. A structurally low‑debt business funds growth from retained earnings. APE still relies on dilution and acquisitions.

The efficiency story looks good, and the margin structure hasn’t changed.

A 12.1% cost base is impressive, but long‑term EBITDA margins remain 2.5–3.0%. The current 4.0% reflects peak cycle, peak pricing, peak used‑car spreads, peak OEM incentives, and peak floorplan tailwinds. Calling this structural assumes margins stay elevated. History says they don’t.

Market share gains don’t create a structural advantage.

APE is a car‑dealer roll‑up operating in a space that is cyclical, incentive‑driven, OEM‑dependent, capital‑intensive, and low‑moat. Winning volume in a downcycle doesn’t change long‑term ROE trends.

The NEV/EV story is real, and the economics remain weak.

APE has 34% of the NEV market, and that market delivers lower servicing revenue, lower parts revenue, lower lifetime gross profit, higher churn, and OEM‑controlled pricing. Selling more NEVs doesn’t fix the weaker economics of NEVs.

This is where mechanical risk shows up.

Mechanical risk — the risk that comes from how the business actually works, not from sentiment or narrative — is still the part of the thesis I’m not convinced has shifted.

CanadaOne is a good example. Integration is “32% above target,” and that’s a management KPI, not a financial metric. The mechanical risks are clear: different regulatory environment, different OEM relationships, different margin structure, different working‑capital cycle, FX exposure, and acquisition accounting noise. Roll‑ups rarely fail in year one. They fail in year three.

The core issue hasn’t changed.

APE is cyclical, capital‑intensive, margin‑capped, acquisition‑dependent, and historically flat on EPS over long periods. A 20× forward multiple assumes margins stay at peak, EV economics improve, CanadaOne integrates perfectly, no macro slowdown, no OEM margin squeeze, and no reversion to long‑term ROE. That’s an optimistic scenario presented as a base case.

When I say “structural compounder”, I mean a business where the underlying economics improve over time without relying on acquisitions or peak‑cycle conditions.

Happy to be proven wrong — I just haven’t seen evidence that a car‑dealer roll‑up has suddenly become a structural compounder.

Disc: not holding

Some really good points there @Foxlowe . The thing that's most important to me from their slide deck is their EPS which as you can see is fairly stagnant. Yeah they might be doing all these deals and revenue is growing, but the problem is the dilution effect (nearly 50% more shares since 2016) means the value not getting through to the shareholders. The only real jumps in the revenue is from big structural acquisitions that they paid up.

I learnt this the hard way as a former owner of ASG, who sold right before it decided to double up to $4.5 (which made no sense to me).

There are still some future considerations for EV (i.e. rollback of incentives, covering fuel excise shortfalls etc) which will play out in the medium term and may shift demand.

Happy to be sitting on the sidelines for now.

You've nailed the mechanical risks, and I concede the point. After stress-testing this, I think the best way to describe Eagers is Cyclical Quality rather than All-Weather Quality. The efficiencies I’m seeing (like the 12.1% cost base and the $100M cleaned-up balance sheet) prove it’s an exceptionally high-quality business. It's the apex predator in the space. But to your point, it is still operating in a highly cyclical, capital-intensive jungle. Paying a 20x+ forward multiple implies we are buying an all-weather compounder. We aren't. We are buying a cyclical beast at what might be peak pricing. The quality is undeniable, but the margin of safety at $20.81 just isn't there. I'll be adjusting my buy target closer to $16-$17, where the cyclical risk is actually priced in. Brilliant debate—thanks for keeping the thesis grounded!"

The EPS stagnation makes perfect sense once you zoom out to the structure of the model.

Dilution is part of it, but the deeper issue is that auto retail is a low‑margin, capital‑intensive roll‑up. Even when they execute well, the incremental returns get spread across a bigger capital base.

That’s why EPS barely moves unless they do a big, lumpy acquisition. The model just doesn’t naturally compound per‑share value over long stretches.

So while the operational quality is high, the per‑share compounding profile is capped. That’s the bit that keeps me from paying a compounder multiple for what is, mechanically, a cyclical operator.

Mid‑teens still feels like the zone where the cycle and the capital structure are actually priced in.