Valuation 8/4/26, last closed at $23.73, a fair price of $30.03, a buy price of $24.13

Eagers reported its FY25 (Jan-Dec) results in Feb, and released an update on 1/4/26. There’s a lot to like, so I’m upgrading my fair price. I see minimal risk that Eagers will perform poorly operationally - it will continue to grow, remain profitable, and pay a dividend. But the market is still trying to decide what multiple the company deserves, with PE ranging from 10 to 35 in the last 2 years. I’ve maintained a slightly conservative/below-average PE in both my bull and bear cases below given the cyclical nature of car sales.

At roughly $6.7b market cap, Eagers is a much bigger company than I usually invest in. It was, fortunately, much smaller when I started investing. It has continued to knock some balls out of the park, with the share price soaring over the last year. I briefly trimmed a little at its highs. But it has retreated a little recently, so I’m continuing to hold. I’d buy if it wasn’t already one of my larger holdings.

Bull case

• By almost any way you want to cut it, Eagers has had a roaring last 12 months.
• Revenue was up 17% in FY25 (their FY is Jan-Dec), incl organic growth of 13%. This doesn’t include the ongoing CanadaOne acquisition which also grew by the same amount (although I’m not sure how much was organic vs acquisition vs currency; Chat estimates about 80% of CanadaOne’s growth was organic).
• NPAT growth was similar at 17%, at 2.0% margin.
• Sales per headcount was up 9%.
• Net debt was down to a negligible $100m, gearing at 0.18x.
• Market share of all new vehicles is 14%, up from 12%; share of new “NEVs” 34%, up from 21%; Eagers is the largest retailer of 13 of the top 20 car brands, and also has 8% share of truck sales.
• In a trading update Eagers reported Jan 26 organic growth up >8% vs pcp.
• Many sources suggest the recent Middle East war has surged interest and orders for EVs.
• The CanadaOne acquisition has received regulatory approval, now just waiting to line up contracts with suppliers.
• On 1/4/26 Eagers announced two other smallish Australian acquisitions, including 49% of a portfolio of dealerships owned by Grand Motor Group, as well as a couple of Audi dealerships. In total these will add about 3% in revenue.
• Management has continue to be exemplary with transparency and capital allocation, including looking after retail shareholders during the recent cap raise. After completion of the CanadaOne acquisition, the Board and execs will own roughly 40% of the company.
• Valuation:
• Revenue: It’s possible Eagers achieves 15% pa revenue growth. This is what it has achieved over the last 7 years. And it is only slightly above last year’s organic growth, which should make it achievable given ongoing focus on acquisitions and expanding its presence in used car sales. This would give FY30 revenue of $33.4b. [Note: this calculation allocates only 65% of CanadaOne’s revenue to Eagers, reflecting Eagers 65% ownership of CanadaOne; this figure is likely to differ to official financial reports that may have to allocate 100% of revenue to Eagers, but then reduce profit allocated to Eagers shareholders to reflect non-controlling interests.]
• Profit: Let’s say with increasing size and expansion into higher margin used cars that Eagers can squeeze net margin to 2.2%, a modest increase from current 2.0%. That would be $734m in FY30.
• Multiple: A PE of 25 is conservative for a company that has achieved CAGR of 15% and paying >3% grossed up dividend. That will give an FY30 market cap of $18.4b.
• Dilution: There had been no dilution of shares over the last 5 years prior to the CanadaOne acquisition. But the cap raise in 2025 to support the CanadaOne acquisition diluted shares by roughly 8%, and there will be a similar amount in vendor scrip dilution when the acquisition is completed. In the absence of another big acquisition, let’s allow for 15% dilution over the next 5 years to support ongoing acquisitions needed to achieve 15% pa growth.
• Dividend: Dividends have been consistent in recent years. With a high PE, let’s assume a continued grossed up dividend around 3%.
• Return: The above values give an FY30 share price of $56.53. Discounting by 10% I get a current fair price of $41.42. Using a 15% discount rate I get a buy price of $33.36. Using the last close price of $23.73, ROI will be 23% pa.

Bear case

• There’s not a lot to dislike about how Eagers has been run over the last 7 years. Barring some major skeleton in the closet with the CanadaOne acquisition, the main risks for Eagers are a slowing economy and a retreat towards historical PE multiples.
• Valuation:
• Revenue: Let’s assume organic and acquisitive growth slows either because of the economy or simply because it’s harder to grow at the same rate as it gets bigger. Say organic growth tracks population growth and inflation at maybe 5% pa. Add a few percent for smallish acquisitions to give 8% pa growth over the next 5 years. That’s chopping off almost half of what they have achieved in recent years. That gives FY30 revenue of $24.4b.
• Profit: Let’s say profit contracts a little from current 2.0% to 1.8% giving FY30 NPAT around $440m.
• Multiple: Putting aside the last year, historically Eagers has had a below average PE for its growth and margins. Let’s say it retreats to 15, which would be a pretty conservative PE for a profitable company growing 8% pa.
• Dilution: As mentioned above, another roughly 8% dilution is coming assuming the CanadaOne acquisition proceeds. But with growth around 8% no other significant acquisitions need to be factored in. Let’s assume 10% dilution over the next 5 years.
• Dividend: If they maintain a similar payout ratio, and with a lower PE, grossed up dividends will be >5%.
• Return: The above values give an FY30 share price of $21.20. Discounting by 10% I get a current fair price of $17.28. Using a 15% discount rate I get a buy price of $13.85. Using the last close price of $23.73, ROI will be 3% pa.

Base case

• If I weigh evenly across the above bull and bear cases, I get an FY30 share price of $38.87. Discounting by 10% I get a current fair price of $30.03. Using a 15% discount rate I get a buy price of $24.13. Using the last close price of $23.73, ROI will be 15% pa.
• This is what I want to see over the next 12 months:
• The acquisition of CanadaOne needs to complete before mid-year.
• 1H revenue needs to grow at least 12% v pcp across the group, with the majority of that growth being organic.
• NPAT needs to hold to at least 2.0%.

***ARCHIVED OLD VALUATIONS***

Valuation 19/11/25, with current price of $29.70, and fair price of $27.10

Following research by Intelligent Investor, I bought into Eagers at around $10.50 mid 2024. Now around $30, I need to assess whether I want to stay or go. For those who don’t know Eagers, they are Australia’s largest owner of dealerships for new and used cars.

Bull case

• Eagers has share price momentum, tripling in the last year. Many investors now regard Eagers as a “quality” stock, granting a higher PE.
• The Board and key management own well over $200m in shares, have proven themselves as strong capital allocators, have clearly improved the business over the last 10 years, and looked after retail shareholders in their last capital raise to acquire CanadaOne.
• All divisions are firing and profitable: selling new cars, selling traded used cars, finance, insurance and service.
• They are clearly benefiting from their size, giving them bargaining power with manufacturers, cheaper financing, and efficiencies with property, staffing and technology. Their cost base is clearly stronger than competitors.
• Their recent strategic initiatives for “big box” locations for selling new and used cars has been successful, with significant benefits still to be gained from continued rollout.
• The recent CanadaOne acquisition (not yet given regulatory approval, although no one is suggesting it won’t be approved) appears well aligned. It grants even greater bargaining power with manufacturers, and provides an opportunity to roll out in Canada the big box used car centres that have been successful in Australia.
• Recent revenue was up 19% and NPAT up 9%, and that’s before the acquisition of CanadaOne.
• Balance sheet is solid, and acquisition of CanadaOne was well structured.
• Teasing out exact revenue and margins is a little difficult following the acquisition, in part because Eagers only acquired 65% of CanadaOne. But assuming roughly $16.5b in CY25 (their FY is the CY) attributable to Eagers shareholders, growing about 10% a year, that will give roughly $660m NPAT in CY30. With a PE around 25, discounting 10%, including 2.5% dividend yield, that gives a current fair price around $37.60. Based on current price, I forecast a 5-year ROI around 15%.

Bear case

• The bear case acknowledges that Eagers is a good quality company, but its market cap has run ahead of intrinsic valuation. The PE is in the mid-to-high 20’s, high for a cyclical low margin business.
• Perhaps revenue growth trundles along at a more modest 6% pa, a little above population growth plus inflation. And perhaps because of the economy slowing, or complications with the acquisition, maybe margin shrinks from roughly 2.2% currently to around 2%. In that case, we’ll be looking at something closer to $440m NPAT in CY30. With a PE of 16, dilution of 10%, dividend yield around 3%, to achieve a 10% return I get a current fair price around $16.30. Based on current price, I forecast 5-year ROI around -2%.

Base case

• If I weigh equally across the bull and bear cases, to deliver a 10% pa ROI, I get a current fair price around $27.10.
• At the current price around $29.70, I forecast a 5-year ROI of 8%.
• If wanting some margin of safety and looking for a 15% pa return, the buy price is around $21.70.
• At current price, with my larger than average position size, I’m planning to slowly trim. I’m reluctant to realise capital gains, and I know good things can happen with good management and share price momentum. But I have other opportunities, with much higher forecast ROI and currently lower position sizes, into which I can move some of my Eagers gains.

Eagers Automotive is a masterclass in operational efficiency and aggressive capital allocation in a tough industry. It is a highly cyclical, property-backed titan that is currently defying macro gravity through strict cost controls and international M&A. While the structural threats of the OEM agency model and EV servicing are real, Eagers' massive scale, expansion into Canada, and management alignment provide a formidable defense. It's a cyclical beast currently executing perfectly.

The Bear Case

Structural Bear Case: The "Agency Model" and the EV Aftermarket. Historically, dealers made their real money on finance, insurance, and the service center (parts and maintenance), not just the metal margin on the car. Two existential threats are colliding:

1. The Agency Model: OEMs (Original Equipment Manufacturers like Mercedes and Honda) are shifting to direct-to-consumer agency models. They set the price online, and the dealer is reduced to a mere handover center earning a fixed handling fee. This strips Eagers of pricing power.
2. The EV Transition: Electric vehicles have drastically fewer moving parts than internal combustion engines (no oil changes, no spark plugs, fewer transmission issues). As the fleet transitions to EV, the incredibly lucrative, high-margin "service and parts" division of Eagers faces a structural, permanent decline in long-term revenue per vehicle.

I’ve spent the week stress-testing Eagers Automotive (APE) following their FY2025 results. 

There has been quiet few posts about how AI generated valuations can mislead us, I am also culpable of that, In this valuation i used morningstar data & it wasnt updated based on 2025 FY results, Intially AI told me its fair value was 14 ish bassd higher debt, later when i post FY 2026 slides it gave me a different picture.

the Probability-Weighted DCF (Expected Value)

I’ve modeled three macro paths. The "Bear" case reflects a scenario where sticky inflation forces the RBA to hike and settle at 4.35%, crushing retail demand.

WEIGHTED INTRINSIC VALUE: $16.91The market is currently pricing in a 90%+ probability of the Bull Case ($21.50).

The DCF Calc

Step 1: Operating Cash (NOPAT)

• Revenue: $13.04B × 4.0% EBIT Margin = $521.6M EBIT
• Tax (30%): -$156.5M
• NOPAT: $365.1M

Step 2: Free Cash Flow (FCFF)

• Reinvestment (30% for CapEx/M&A): -$109.5M
• Annual FCFF: $255.6M

Step 3: Terminal Value (Year 5+)

• Using 8.0% WACC & 3% Terminal Growth: $5,265M

Step 4: From Enterprise Value to Equity

• Present Value of all Cash Flows: $5,028M
• Minus $100M Net Debt (The FY25 Miracle)
• Total Equity Value: $4,928M
• Divided by 282.36M Shares = $17.46/share

If we buy today at $20.81, what must happen to get a 10% annual return over 5 years?

Starting EPS: $1.007 (FY25 Underlying)

Required Price in 5 Years (for 10% CAGR): $33.51

 The Verdict: Is $20.81 now a "Buy"?

With an underlying EPS of 100.7 cents, Eagers is currently trading at a forward P/E of roughly 20.6x.

• The Bull Case: If you believe the "Eagers Premium" is permanent (due to their 34% EV share and $900M property book), then at $20.81, you are paying a fair price for 10% annual growth.
• The Bear Case: You are still paying a 60% premium over the 10-year median P/E (12.8x). If the market decides that a car dealer shouldn't trade like a tech company, you face significant "multiple compression" risk.

The headline statutory numbers for APE are a lie. The real story is in the FY25 Investor Presentation: Underlying EPS of 100.7 cps and Corporate Net Debt crushed to $100M.

When we run the weighted DCF using these audited underlying figures, the Intrinsic Value rises to $18.50 - $22.00.

At $20.81, you are no longer overpaying for a value trap. You are paying a fair price for the dominant player in the Australian EV transition. The debt risk is gone, the margins are resilient at 4.0%, and the CanadaOne acquisition is the next leg of growth. Accumulate on any weakness under $20

Given the interest rate rises happening & global uncertainity coming its seems decsion of management to raise cash was a good move.

1. The "Prudent Aggression" Strategy

By raising $502M in equity at $21.00 (which, as we saw in our DCF, was significantly above the "Base Case" intrinsic value at the time), management effectively sold "expensive" stock to fund a "cheap" strategic beachhead in North America.

They used the market's high P/E multiple as a weapon. This allowed them to:

• Acquire 65% of CanadaOne (adding ~$5.5B in revenue).
• Actually reduce their corporate debt simultaneously.
• Maintain a record 74 cps dividend for the year.

2. Eliminating the "Interest Rate Trap"

The genius of this move is most apparent when looking at your Iran/Oil Shock macro thesis. If management had funded the $1B CanadaOne deal with debt, an RBA hike to 4.35% would have been a disaster. The interest payments would have eaten the acquisition's profits whole.

By choosing equity over debt, they built a Fortress Balance Sheet (0.18x Gearing) that makes the company practically "bulletproof" to the very interest rate hikes you were worried about.

3. Inventory Efficiency as "Hidden" Capital

Management didn't just look at the bank; they looked at the car yards. They improved inventory productivity, holding only 56 days of supply. In a world of 4% interest rates, every car sitting on a lot is a "leaking tap" of interest expense (Floorplan). By keeping this lean, they freed up more cash to pay down that corporate debt.